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High-net-worth individuals (HNWIs) often build wealth through complex portfolios and business interests. In an environment where tax rules are changing and estate tax exemptions are about to shrink, proactive planning is essential. This article outlines practical strategies to reduce tax liabilities, protect family wealth, and ensure a smooth transition of assets.
Optimise Investment Portfolios for Tax Efficiency
Use the Right Accounts for the Right Assets
Investment returns can be eroded if they’re generated in the wrong type of account. Advisors recommend a tax-locationstrategy: place investments that generate ordinary income (such as bonds or REITs) inside tax-deferred or tax-exempt accounts, and hold tax-efficient assets (such as broad index funds or ETFs) in taxable accounts. This approach helps defer or eliminate annual taxes on interest and dividends.
Coupling this with year-round tax-loss harvesting, where losing positions are sold to offset gains elsewhere, can further reduce taxable income.
Harvest Tax Losses and Manage Withdrawals
Loss harvesting isn’t just a December activity; by realising losses throughout the year, you can offset gains from other parts of your portfolio.
When retirees need cash, careful sequencing of withdrawals matters. Pulling money from taxable accounts first, then tax-deferred accounts, and finally tax-free Roth accounts maximises compounding and minimises taxes. Municipal bonds can also play a role in taxable accounts because their interest is exempt from federal income tax.
Reduce Taxes Through Strategic Giving
Donor-Advised Funds and Bunching Contributions
Charitable giving can significantly lower taxable income. Donor-advised funds (DAFs) allow donors to make a single contribution, receive an immediate income-tax deduction, and advise on grants to charities over time. Assets in the fund grow tax-free, and donors can bunch multiple years’ contributions into one large gift to exceed the standard deduction.
Qualified charitable distributions (QCDs) let individuals aged 70½ or older give up to USD 108,000 directly from an IRA to charity, satisfying required minimum distributions without raising adjusted gross income.
Private Foundations and Charitable Trusts
For families seeking more control, private foundations provide flexibility to run scholarship programmes, hire staff, and support non-profit initiatives. However, they must distribute at least 5% of assets annually and pay a 1.39% excise tax on investment income.
Charitable remainder trusts allow donors to receive an income stream during life while leaving the remainder to charity. These trusts offer income-tax deductions and remove assets from the taxable estate.
Preserve Wealth Before the Estate-Tax Exemption Shrinks
Under current U.S. law, each person can transfer up to USD 13.61 million (USD 27.22 million per married couple) without triggering federal estate or gift tax. On 1 January 2026, this exemption will revert to roughly half that amount.
Clients who plan to leave large estates should consider using the high exemption now through lifetime gifts or irrevocable trusts. Spousal Lifetime Access Trusts (SLATs) allow spouses to set aside assets for future generations while still granting the donor couple access to income.
Advisors also recommend making annual exclusion gifts and establishing irrevocable trusts to freeze the value of appreciating assets.
Choose the Right Business Structure
Many HNWIs own businesses. The choice between a pass-through entity, C-corporation or other structure affects both income and estate taxes.
The 2024 “One Big Beautiful Bill Act” (a proposal expected to be enacted in 2025) would make the 20% deduction for qualified business income from pass-through entities permanent. It also extends bonus depreciation and expands qualified opportunity zones.
Pass-through structures offer simplicity, but C-corporations may provide better fringe-benefit deductions and facilitate international expansion. In some states, electing to pay a pass-through entity (PTE) tax can circumvent the USD 10,000 federal deduction cap on state and local taxes. A thorough review with accountants and legal counsel can uncover savings.
Anticipate Evolving Tax Laws
Tax legislation is fluid. Changes to capital-gains or income-tax rates could require accelerating income or deferring deductions.
Advisors urge clients to stay informed and revisit plans regularly. For example, higher capital-gains tax rates might favour realising gains sooner rather than later; if Congress lowers rates, deferral may be advantageous.
International investors should also monitor treaty updates and reporting requirements.
Understand UAE Corporate-Tax Implications
Many HNWIs relocate to Dubai or invest through UAE entities. The UAE introduced a federal corporate-tax law (Federal Decree-Law No. 47 of 2022) that applies a 9% rate to business profits.
Natural persons conducting business in the UAE must register for corporate tax if annual turnover exceeds AED 1 million. Employment income, personal investment income, and real-estate investment income remain exempt.
The first AED 375,000 of taxable income is taxed at 0%, and the remainder at 9%. Residency does not determine liability; it depends on whether the individual runs a business or maintains a permanent establishment in the UAE. Small-business relief is available if turnover stays below AED 3 million.
Combining corporate tax with no personal income tax can make the UAE attractive for entrepreneurs and investors.
Conclusion and Next Steps
Effective tax optimisation and estate planning require integrating investment strategies, charitable giving, and business structures. The coming reduction in the estate-tax exemption and the introduction of corporate tax in the UAE underscore the importance of acting now.
Paulson & Partners specialises in personalised solutions for HNW clients, from asset location and trust formation to cross-border structuring. Contact our team today to craft a tax-efficient plan that safeguards your legacy.
