Taxation drives real returns in wealth management

Taxation is not secondary in wealth management: it is one of the main factors that determines a portfolio’s real return. A well diversified portfolio of solid assets can deliver far lower net gains if tax is not planned, and missed planning in large estates can cost around 3% of the asset base annually in avoidable taxes. Tax considerations matter when income is generated, while assets are held, and when they are transferred in life or at death; they therefore need to be integrated into every decision to protect and grow capital coherently over time.

Withholding taxes on dividends and interest are a key detail. Foreign fixed income often has no withholding at source, while dividends usually do. In the United States, the standard withholding on dividends is 30%, reducible to 15% under many double taxation treaties—Spain being one example—if the investor files a W‑8BEN form with the financial institution to claim the reduced rate. A single administrative step like this can produce material savings: on €300,000 of annual dividends, applying the treaty rate could save €45,000 a year and €450,000 over ten years, reinforcing the effect of compound returns.

Capital gains tax timing and lot selection also influence net outcomes. Gains are taxed on sale, which allows choosing the optimal moment to realise them. Some jurisdictions permit flexible cost-basis methods; moving from an average cost method to lot selection systems such as FIFO (first in, first out) or LIFO (last in, first out) can materially change reported gains or losses. In a sale of €1,000,000 of shares purchased at different times, selecting the most advantageous lot allocation can significantly reduce taxable gains or increase deductible losses.

The choice of investment vehicle affects timing and character of taxation. Controlled low-tax vehicles that generate passive income—such as certain companies or funds under the investor’s control—may trigger international tax transparency rules, which can force attribution of unrealised income to owners. By contrast, regulated pooled vehicles like UCITS or other funds where an investor lacks control typically allow deferral of tax until the investor disposes of their holding. Unit-linked insurance products, which combine investment and life-insurance elements, similarly provide tax deferral until full or partial surrender. Selecting the appropriate vehicle for holding financial assets is therefore as important as choosing the assets themselves.

Wealth or net worth taxes directly charge the mere ownership of assets in some jurisdictions, with rates that can reach around 3% annually. Optimising this burden requires analysing the rules of the taxpayer’s resident jurisdiction and the jurisdictions where assets are located, and may involve measures such as advancing transfers or reorganising ownership structures.

Inheritance and gift taxation is the final stage of wealth planning and can be particularly heavy—often exceeding 40%. Effective succession planning must combine tax efficiency with the wishes of the decedent. Techniques include lifetime gifts, splitting ownership, or legal arrangements such as trusts (or fideicommissum-like structures), but their suitability depends on the donor’s and heirs’ tax residency and the location of the assets. A coordinated analysis of these factors is essential to ensure transfers are both tax-efficient and consistent with family intentions.

In short, taxation is a central pillar of wealth management: it improves net returns, protects capital and facilitates transfers that respect the owner’s wishes. When tax is handled proactively and consistently, assets are less likely to erode and can realise their long-term potential.