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Date: November 23, 2021
Posted by: CPDMA Team

The use of private pension plans as instruments of tax and succession planning

In the case of private pension plans, two different types of plans that can be contracted by individuals in Brazil are commonly referred to. The Vida Gerador de Beneficios Livres (VGBL) and the Plano Gerador de Benefícios Livres (PGBL) are available to investors and have different characteristics that must be carefully evaluated at the time of hiring. Each of these types of plans has advantages and disadvantages that must always be considered based on the objectives of the person who will be hiring them.

The PGBL plan is characterized by the fact that it is a deductible expense when calculating the Individual Income Tax (IRPF). Up to 12% of the taxable income amount can be deducted from the amounts paid to the PGBL, thus reducing the amount of IRPF payable annually. As for the final taxation, Income Tax is levied on the redemption of the total value of the investment, that is, on the total amount invested together with the income for the period. PGBL is considered a supplementary pension plan.

In turn, the VGBL plan does not constitute a deductible expense in the calculation of the IRPF, but has the advantage of the fact that the Income Tax on redemption is levied only on the capital gain of the application, and not on the entire investment. Another outstanding feature of the VGBL is the possibility of appointing heirs who will receive the accumulated amount in the event of the death of the plan holder. Due to this characteristic, VGBL is considered a life insurance and not a supplementary pension.

Recently, the Superior Court of Justice ruled that the VGBL amounts paid to the heirs do not have the characteristic of inheritance, but of life insurance, which is why they should not be taxed by the tax levied on the transmission carried out as a result of donation or caused by death (ITCMD). In some states, this tax reaches rates of 8% on total assets.

According to the STJ's understanding, VGBL is life insurance, not being subject to the insured's debts, nor being considered inheritance for all legal purposes, as provided for in article 794 of the Civil Code. Thus, not being an inheritance, it is excluded from the ITCMD calculation basis.

Faced with such a scenario, individuals wishing to carry out tax and succession planning must avail themselves of the possibilities of using the PGBL and VGBL pension plans, according to their objectives and investment possibilities.

On the one hand, the PGBL has the advantage of allowing deductions from the IRPF, reducing the tax payable annually. An important option for those who, in life, want to carry out tax planning and reduce the amounts of tax payable annually; on the other hand, the VGBL constitutes an important tool for succession planning, allowing the heirs to leave tax-free resources.

Therefore, it is important to carry out studies and develop strategies for adequate tax and succession planning, in which private pension plans will play an important role. The options available in Brazil allow for both tax planning and succession planning, allowing investors to find the best option in line with their medium and long-term interests.

Source: Wagner Arnold Fensterseifer.

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