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There are two key aspects to financial planning: Setting up your capital to achieve your objectives for income and growth and tax mitigation.

The first step in any financial planning exercise - whether you are looking for the most effective way to invest some new capital or reviewing your existing savings and investments - is to establish what your objectives are. These are likely to include one or more of the following:

• To provide a regular income
• To ensure you have enough money available should you need it (eg, for medical costs, a new car, a dream holiday etc)
• To protect the value of your money (i.e. to earn enough capital growth to keep pace with inflation and maintain your spending power through the rest of your life)
• Long-term capital growth
• Financial security
• To leave your children as much inheritance as possible

The next step is to select the most effective mix of savings and investments to reach your goal, and this selection should also take your personal circumstances into account - your age, time horizon, how much other money you have available (eg, pension income, capital invested/saved elsewhere, inheritances to come, etc) and your attitude to risk. The portfolio you end up with should be designed specifically to suit you; it will aim to meet your long-term objectives in a manner that it appropriate to your current situation.

The key to successful financial planning is to achieve your goals within your risk profile and with as little risk as feasible – many investors take on more risk than is necessary to meet their objectives, but with strategic financial planning you can avoid this.

On the other hand you also need to accept that you cannot avoid risk altogether. There is even risk attached to leaving money in the bank, because the lack of capital growth means that the value of your money decreases every year as a result of inflation. Most people would reject an investment which would (in terms of spending power) continuously lose them money, yet the same happens to money left in the bank if the interest is withdrawn.

Therefore, even if your only goal is to use your savings to earn an income, you still need to allow your money to earn some growth so that it keeps pace with inflation. Otherwise, when you come to use this capital, you will find it is not worth as much as it once was and may not be sufficient to meet your needs. The more time passes, the more value it will have lost.

A strategic investment portfolio will help you achieve your goals and beat inflation, at the same time as controlling risk. This is achieved through asset allocation - your portfolio will include a bespoke mix of equity funds, bond funds, property funds etc. Each of these will have further levels of diversification across countries, sectors, styles, managers and perhaps currencies. The addition of a guaranteed investment account will help you lower risk further still. And of course you would also keep some money in cash.

Tax mitigation is another aspect of financial planning, but it is also inextricably linked to achieving your investment goals. Good tax planning will give a sizable boost to your income and growth aspirations, to your success at beating inflation and to your long-term financial security.

Likewise, the investments and savings structures you choose will affect your tax planning. This could be in a detrimental way - for example, retaining investments which were tax free in the UK but liable to tax now that you live elsewhere, or leaving your money in the bank where the interest is highly taxed; or in a beneficial way – for example by selecting investments which are tax efficient in Spain.

Should your financial planning start with tax planning or investment planning? Ideally you want to avoid selecting savings and investments which will result in you paying more tax than necessary.

It is possible to combine both in one exercise. An offshore insurance bond is one such structure – sometimes referred simply as an ‘offshore bond’, or ‘personal portfolio bond’, or ‘private client portfolio’ or ‘tax wrapper’. The last is perhaps the most descriptive since basically what these bonds do is protect your choice of investment assets from unnecessary tax.

You would therefore select your mix of equities, bonds, property, cash etc according to your objectives and circumstances. This will probably mean selling your UK based investments to release the capital so that it can be invested more effectively for the country you live in now. Your choice of investments is then placed inside the offshore bond and will benefit from significant tax advantages in Spain.

These offshore bonds fall outside the EU Savings Tax Directive, helping you maintain financial confidentiality. You may also consider placing your offshore bond within an offshore trust for increased benefits.

Article by Blevins Franks