The Importance of PIE Structures for High Income and High Net Worth Investors
Why PIE?
For New Zealand investors, particularly high-income earners and high-net-worth individuals, understanding the Portfolio Investment Entity (PIE) structure can unlock significant tax advantages and investment flexibility.
What is a PIE?
A Portfolio Investment Entity (PIE) is a type of investment fund designed to pool assets and distribute income while offering tax efficiency. PIEs can be made up of a variety of asset classes like equities, bonds, and property, and are widely used in KiwiSaver funds and other managed funds. The key feature of a PIE is its tax advantage—tax is capped at a maximum Prescribed Investor Rate (PIR) of 28%, even for those who would otherwise pay up to 39% on their individual income.
Why Does This Matter for High-Income Earners?
If you earn over $180,000, your personal income tax rate sits at 39%. However, by investing through a PIE, your income from investments will be taxed at a capped rate of 28%. This difference can translate into significant savings, particularly for those with substantial investment portfolios. As trust tax rates have also risen to 39%, PIEs offer an effective way to manage wealth tax-efficiently for individuals and trusts alike.
How Does the PIE Structure Work?
When you invest in a PIE fund, the income generated by your investments is taxed at your personal PIR. Depending on your income level, your PIR could be as low as 10.5%, or capped at 28%. This means that even high earners benefit by paying less tax on the returns from their investments compared to the regular income tax system. Additionally, capital gains on New Zealand shares and certain Australian shares held in PIEs are typically tax-free, enhancing the after-tax return potential.
The Benefits:
Tax Efficiency: Let’s say you’re a high-income earner at the 39% tax bracket. By shifting your investment portfolio into a PIE, you can reduce the tax on your investment income to 28%, which results in a direct increase in your post-tax returns.
Diversification & Flexibility: Many PIE funds offer exposure to a range of asset classes, allowing for diversified portfolios tailored to different risk profiles.
Minimal Admin: PIEs handle the tax calculation and payment directly with the Inland Revenue Department (IRD), meaning you don't have to worry about declaring investment income on your tax return.
Is PIE Right for You?
If you’re a high-income or high-net-worth investor, switching some or all of your investments into a PIE structure could provide immediate tax relief and long-term financial benefits. Whether you’re looking to reduce the tax impact on your wealth or grow your investment portfolio, PIEs offer a compelling solution.
Ready to Explore PIE Investments?
At Compound Wealth, we specialise in helping high-income earners and high-net-worth individuals maximise their financial outcomes through tax-efficient investment structures like PIEs. Contact us today to explore how a tailored PIE strategy can fit into your wealth management plan. Start with one of our quizzes below, or book in a time to speak with us.
Compound Wealth are a KiwiSaver, Retirement and Private Wealth Financial Advice Firm based in Mount Maunganui, Bay of Plenty with clients all over New Zealand.