How do we optimize the structuring of your portfolio?

The Belgian tax administration allows the Belgian taxpayer to invest in a multitude of tax-deductible envelopes, each with its own rules and tax benefits. The interest of these different envelopes will vary depending on your investment objective (eg retirement planning) and your social status (eg employee or company director). While some envelopes provide a significant tax benefit, it is generally capped and the maximum amount that can be invested is limited.

Given the multitude of tax-deductible envelopes available and criteria to consider, optimizing the structuring of its wealth is proving to be a complex exercise. easyvest uses the following optimization framework:

1. We classify the tax-deductible envelopes according to their potential return, from the highest to the lowest, taking into account entry and exit taxes, the management fees and the expected return;
2. We select the envelopes based on the social status and the investment objective;
3. We maximize the amount invested in each envelope in until their regulatory limit is reached starting with the one offering the highest expected return.

Retirement planning

The structuring of a pension plan is a complex exercise that should not be taken lightly since it maximizes the capital required to supplement the statutory pension. When properly executed, taking into account not only tax benefits but also the returns of the different pension products, this exercise generates considerable tax and financial gains. The banking and insurance products to be considered are described below.

Group Insurance

Group Insurance is a pension product taking the form of life insurance subscribed by a company for the benefit of its employees in order to supplement their statutory employee pension. The premiums used to build the pension capital are paid directly by the company, are tax deductible and are not subject to the social security contributions and withholding tax. It is therefore a good way for a company to supplement the remuneration of its employees by minimizing expenses. Since the company is legally responsible for guaranteeing a minimum return to its employees, the vast majority of Group Insurance consists of Class 21 with a guaranteed rate. The reserves of a group insurance are blocked until the pension but can be transferred from one insurer to the other in case of change of employer.

Company Individual Pension Agreement (CIPA) for company directors

Company Individual Pension Commitment (CIPA) for company directors is the equivalent of Group Insurance for the company director. It is a pension product taking the form of life insurance subscribed by a company for the benefit of one of its directors in order to supplement his statutory pension as self-employed. The amount that can be contributed to a CIPA depends on the professional income of the executive and is capped by the 80% rule. The premiums used to build the pension capital are paid directly by the company and are fully deductible as professional expenses. This is a good way to transfer some of the company's excess cash to its directors. The reserves constituted (capital, interest, share of profit, capital gains) are paid back to the director at retirement. The CIPA may be invested in Class 21 at a guaranteed rate or in Class 23 in non-guaranteed capital investment funds exposed to the market. It therefore offers attractive returns for the executive who is open to some risk-taking.

Personal Individual Pension Agreement (PIPA) for self-employed

The Personal Individual Pension Agreement (PIPA) for self-employed is the equivalent of Group Insurance for the self-employed natural person. It is a pension plan taking the form of life insurance subscribed by a self-employed worker for his own account in order to supplement his statutory pension as self-employed. The amount that can be contributed to a PIPA depends on the professional income of the self-employed worker and is capped by the 80% rule. The premiums used to build the pension plan capital are paid directly by the self-employed worker and offer a tax deduction of 30%. It is therefore a good way to reduce one’s tax base while preparing for retirement. The reserves constituted (capital, interest, profit shares, capital gains) are paid back to the self-employed worker at the time of his pension. The PIPA may be invested in Class 21 at a guaranteed rate or in Class 23 in non-guaranteed capital investment funds exposed to the market. It therefore offers attractive returns for the self-employed worker who is open to some risk-taking.

Free Pension for Self-employed (FPS)

The Free Pension for Self-Employed (FPS) allows the self-employed worker, liberal professions and business executives included, to supplement his statutory pension of self-employed. The amount that can be contributed to a FPS depends on the professional income of the self-employed and is capped annually on a lump sum basis. The FSP is advantageous from a tax point of view since the premiums granted are recorded as professional expenses for the self-employed who can deduct them fully, reducing his social security contributions personal income tax.

This very popular tax-deductible envelope among self-employed is often recommended by accountants and brokers because it does not present any entry tax and offers a high deductibility. Besides this advantage, the FPS has two major drawbacks. On the one hand, it only gives access to Class 21 products with guaranteed rates that do not cover inflation in most instances. On the other hand, it is the tax-deductible envelope that is the most imposed at retirement, through the fictitious rent annuity mechanism.

Taking into account these different elements, the FPS is financially speaking the least interesting envelope of all. For this reason, easyvest does not generally recommend the FPS, except for those wishing to opt for guaranteed rate products or for the purpose of diversifying pension plans in order to minimize the tax risk in the eventuality that the tax authority decides to make other tax-deductible envelopes less attractive than the FSP in the future.

NIHDI contract

Care providers contracted to the National Institute for Health and Disability Insurance (NIHDI) are for the most part eligible for a NIHDI contract. This fixed annual contribution from the NIHDI, which only requires a simple request from the care provider, is granted to his benefit in order to supplement his statutory pension, whether the latter carries on his activity as an employee or as self-employed. The amount paid by the NIHDI varies according to the profession (eg doctor, pharmacist, dentist, nurse).

Since this contract is fully contributed by the NIHDI for the benefit of the contracted care providers without requiring any contribution on their end, it is wise to subscribe to it. That being said, the NIHDI contract is not without constraint or 100% free. This plan first requires a contribution to a solidarity fund of 10% of the annual premium. It restricted to investment in Class 21 offering a low guaranteed rate, which limits the potential return over the long term. The sums contributed are also taken into account under the 80% rule and limit the potential contributions of other envelopes offering more attractive returns. Finally, this contract is subject to a tax on exit.

The Pension Savings (PS)

The Pension Savings is a tax-deductible envelope available to any Belgian taxpayer allowing him to invest up to € 1,250 per year (in 2018) for its pension and to recover up to 30% of the amount invested in the form tax reduction.

The Investment Account

The Investment Account offers no specific tax benefit in the context of retirement planning but is unavoidable because of its flexibility it offers and its low costs. Other envelopes offer undeniable but capped tax benefits. Once all other envelop are full, the investment account remains the reference tool for investing excess savings and building up one’s pension savings.

Other envelopes

Long-term savings and non-fiscal life insurance are two other envelopes available. The first can be interesting if you do not benefit from a tax reduction related to a mortgage loan. As for the second, we struggle to find him a financial interest compared to the investment account whose costs and taxation are lower.

Other investment objectives

If you seek to structure your capital in a context other than retirement planning, such as a regular investment or an estate planning, two envelopes will be available: the investment account or the non-fiscal life insurance.

The Investment Account

The Investment Account is the Swiss knife of financial structuring thanks to its low management fees and its high flexibility. It does not impose any constraints on the investment horizon (i.e. you can withdraw your capital at any time without charge), nor any investment restrictions. It also offers great flexibility as to the nature and number of its beneficiaries: natural person, company, couple, minor child, usufruct / bare property, joint ownership, foundation, etc.

Non-fiscal Life Insurance

Non-fiscal life insurance can, like the investment account, be opened for a multitude of situations but has higher management fees and imposes an investment horizon of at least eight years to benefit from tax deductions with respect to withholding and transaction taxes.

Since most structuring can be achieved with an investment account, requiring specific documentation in some instances, why one should use the non-fiscal life insurance? In a few specific situations and depending on the region of tax residency of the investor, non-fiscal life insurance can be useful in protecting the paid-up capital from any external creditor. In general, and apart from the tax-deductible life insurance envelopes dedicated to the pension (eg CIPA, PIPA, pension savings), easyvest sees little interest in non-fiscal life insurance.