An offshore bond applies the legal and tax advantages of a life assurance policy to an investment portfolio, which can bring some useful tax advantages to the investor. Offshore bonds are taxed under the chargeable event legislation, which means gains are assessed to income tax, rather than capital gains tax CGT. As the bond is invested with an offshore insurer, it does not suffer any income tax or CGT within the fund except for any un-reclaimable withholding tax that may have been applied.
An offshore portfolio bond is another name for an offshore investment bond. It is a potentially tax efficient investment wrapper that can hold different assets, such as stocks and shares and mutual funds. It is critical to note that the tax efficiency of an offshore portfolio bond is not always advantageous or applicable, and depends on your country of tax residence, and tax status.
Gross roll up, or its absence, can have a significant impact on your investments returns. You can see that the impact of tax is astonishing, and that careful tax planning via vehicles such as an offshore bond - where suitable and appropriate - is important. Here is a practical example of how top slicing works for those with offshore investment bonds who are or become UK residents for tax purposes. Onshore bonds can benefit from top slicing, but it is only available going back to the date of the last chargeable event - and not back to the start of the bond.
This highlights another potential benefit of an offshore bond, which is time apportionment relief. Where this happens, any chargeable gain is proportionately reduced based on the number of days absent from the UK, divided by the number of days since the policy commenced. The underlying investments within the bond will most likely play a far more crucial role in either meeting or failing to match your expectations than any other single factor. An offshore bond can offer a broader range of investment choice than its onshore counterpart see image.
It should be kept in mind that this greater flexibility may result in higher charges. The provider will levy dealing charges to buy and sell different investments in the bond; there will also be custodian charges and provider-specific charges. There needs to be a sound case for greater investment flexibility that justifies paying much higher fees. These bonds are often issued from low or no tax jurisdictions, some of which offer investor protection policies, but the amount of protection afforded will depend on the jurisdiction in which the issuing life company is resident, and not all jurisdictions offer a local scheme.
Offshore bonds, as their name implies, are outside the UK for tax purposes. It is important to understand the consumer protection offered by the jurisdiction where the offshore bond sits e. Isle of Man, Dublin, or Guernsey. Only when you understand and are comfortable with that protection should you consider using a provider that favours one jurisdiction over another. There is nothing intrinsically wrong with offshore investment bonds.
They can be beneficial and suitable solutions for many people - both onshore and offshore. Even the most successful underlying investments will fail to thrive when subject to excessively high charges. But someone who inadvertently trusts an adviser seeking the largest pay out could lose 9. All providers and all bonds have different charging structures, and it is an unfortunate feature of the most popular offshore investment bonds that their fees and charges are indecipherable.
Investing in offshore bonds can be advantageous for those with a lump sum to invest for at least the medium-term, but costs need to be controlled, and underlying investments well-diversified. Also, the tax benefits of offshore bonds are not always advantageous for those they are marketed to.
If you are an international executive and you have a lump sum to invest, you may therefore be advised to wrap it in an offshore investment bond. All too often the offshore bonds recommended are too expensive and restrictive, and much better and cost-effective options are available. This is a free, no obligation deep dive into your investment portfolio as a whole, where all costs you have been and are continuing to be exposed to are revealed, and explained in terms of the impact on your wealth.
Tax wrappers can be expensive if the benefits are not justifiable for the individual concerned. Investment bonds often are loaded with high establishment charges and high discontinuance penalties. The main charges to be mindful of are establishment charges, administration charges, dealing charges, fund manager charges, and exit charges.
As financial planners, we use these wrappers to assist clients with their often fairly complex tax planning needs. Being able to hold assets offshore and pay no tax on the capital increases or income distributions until a point in time specified by the client, to fit around other controllable sources of income, is a very valuable tool. Many expatriates prefer to invest in offshore funds via offshore bonds rather than onshore unit trusts, because when profits are taken from the offshore investment bond, they are taxed as income at whatever tax rate applies to the investor in the country they are residing in.
This can allow the investor to defer tax, to time the surrender of an offshore investment bond, and to control what tax they pay and when they pay it. Offshore investment bonds offer potential tax advantages if you spend time residing outside the UK.
This is because you can claim tax relief on gains made while you reside offshore. Investing offshore therefore, in its simplest form, is simply investing in a country other than the one in which you live. Just as offshore banking is holding an account in a country other than the one in which you live.
There are many reasons to consider investing offshore in funds or bonds or even real estate — one of the most common reasons is to gain exposure to opportunities not available in your home country. In this article we focus on a particular type of offshore investment, namely bonds. We explore the pros and cons of these products, discuss who they are potentially advantageous for, and highlight the main risks that we feel very strongly are not highlighted sufficiently well to potential investors like you.
One important point to cover is whether tax free investing offshore is only for the rich or dodgy! It is also not the exclusive right of rich and infamous. An offshore investment bond is a financial product. Offshore Investment Bonds Learn more about these investment wrappers. What are offshore investment bonds? This can have a significant impact on returns, as we will show you below.
Why issue bonds offshore? Do offshore bonds work? Are offshore investment bonds taxable? How are investment bonds taxed? Investing in offshore bonds: key facts. Structure of an investment bond Offshore bonds are tax wrappers, within which you can invest in a wide range of funds covering different types of assets such as equities, fixed interest securities, property and cash deposits. Taxation of an offshore bond Offshore bonds are taxed under the chargeable event legislation, which means gains are assessed to income tax, rather than capital gains tax CGT.
The personal representatives will provide the beneficiary with a statement, showing the amount of estate income paid to that beneficiary and the amount of tax deemed to have been paid on that income. In the case of a bond, the personal representatives might encash where the beneficial owner has died but the bond has continued due to the existence of another life assured. Any chargeable event gain arising on the continuing policy is treated as income of the estate and the personal representatives will be liable to tax on that gain.
With an offshore bond, gains are charged at basic rate in the hands of the personal representatives. The circumstances when trustees are taxable are considered in the Taxation of UK Bonds article. Where trustees are taxable, and it is an offshore policy, then:. This is the sole investment of the trust. This is covered in detail in our Top Slicing Relief article.
No top slicing relief is available for the annual gains that arise on 'personal portfolio bond events' see later section. This now also applies to policies issued by UK insurers on or after 6 April and to existing policies issued by UK insurers, which are modified on or after that date.
The chargeable gain for an offshore policy is reduced for tax purposes if the beneficial owner was not UK resident throughout the policy period. Please see the Tax Planning with Offshore Policies article for more information. Budget originally announced a consultation exercise on 'reforming' the time apportionment rules. The chargeable event regime enables individual investors to postpone tax on underlying economic gains until the policy comes to an end.
The personal portfolio bond PPB rules provide a stricter regime where the property that determines the benefits under the policy is personal to the investor in a way that goes beyond the usual choices offered. One example of this is a bond where benefits are determined by reference to shares in the policyholder's private trading company, which he has transferred to the insurer.
The PPB regime is therefore an anti-avoidance measure founded on the principle of an annual charge. The rules apply to a policy that is a PPB at the end of an 'insurance year', unless it is the 'final insurance year'.
The calculation made to determine whether a gain arises and, if so, its amount is in addition to any other calculation required under the chargeable event regime. An insurance year begins on the day a policy is taken out and on the same date in subsequent years. It ends on the day before the anniversary of the start date and each subsequent year.
A policy taken out on 3 June will have an insurance year ending on 2 June The second insurance year begins on 3 June and ends on 2 June and so on. Where a policy is a PPB at the end of the insurance year, there is a PPB gain if the sum of premiums paid and total amount of earlier PPB excesses exceeds the total amount of part surrender gains. This calculation is not performed for the final insurance year. Sam would get no relief for this deficiency since he incurred no previous chargeable event gains on part surrender or part assignment.
Except where the terms of the policy only permit the selection of certain narrowly defined property or indices. It is important to note that a critical factor in determining whether a policy is a PPB is the scope of a policyholder's ability to select a property or index under the terms of the policy, rather than what in practice is selected.
Where the policyholder genuinely does not have the ability to select property or an index, even if that property or index is not within any of the permitted categories, the policy will not be a PPB, although the presence of personal assets would test this analysis. This provides a power to update the table contained in Section 2 of Income Tax Trading and Other Income Act , in secondary legislation.
Regulations to remove a property category will be subject to the affirmative procedure, whilst additions will be subject to the negative procedure. Regulations have been published adding UK real estate investment trusts, overseas equivalents of investment trust companies and authorised contractual schemes to the table, and removing category 7a. An interest in a collective investment scheme constituted by a company resident outside the UK, other than an open-ended investment company.
Top-slicing relief is not available on gains on PPB events and therefore insurers must always report the number of years as 1 on chargeable event certificates see later section. Where an overseas life company issues a policy to a UK investor who subsequently relocates to that same country, then tax implications can potentially arise. For example the company may then be obliged to deduct tax from the policy and pay it to the host tax authorities in recognition that the policyholder then resides in that territory.
In addition, if the overseas jurisdiction has a system which taxes gifts, acquisitions or estates then the policy might fall within that regime in certain situations. Exemptions and reliefs might apply but each investment would need to be considered on a case by case basis. Overseas insurers fall within the scope of the chargeable event reporting rules where a minimum level of business is conducted with UK residents.
Accordingly, in most circumstances, information about chargeable events must be provided to policyholders and HMRC in broadly similar fashion to that provided by UK insurers. For example the insurer may supply the information directly. The main duties of a tax representative are to provide information about chargeable events and gains to policyholders and HMRC.
An insurer is not required to take active steps to establish whether an individual policyholder is resident in the UK — that is a matter for HMRC. The insurer must act according to the residence status that is indicated by the information in its possession. It should however act upon any relevant information that it receives.
If the insurer has a live correspondence address for the policyholder then it should treat the policyholder as resident in the country, unless it has other information indicating that the policyholder is actually resident in another country. If the insurer has reason to believe that the address is not where the policyholder lives, but has no information about the policyholder's place of residence, then there is no requirement for the insurer to establish the place of residence unless it chooses to do so for its own purposes.
There may be circumstances in which the insurer has no information about where a policyholder lives at the time of the event either directly from the policyholder or via an intermediary. In the absence of any contrary evidence, an insurer should assume that the policyholder is resident in the UK if:. The information that must be reported to policyholders and the circumstances in which it must be supplied are similar to that for UK insurers. Please see the Taxation of UK Bonds article for more information including time limits.
The tax representative is required to report whether income tax would be treated as paid, and if so the amount of the tax. In practice however, where the policy is from an overseas insurer it will almost always be the case that no income tax is treated as paid on the gain. The main exception is where the policy was taken out before 18 November and has not been varied since then to increase the benefits secured or extend the term. A tax representative is required to calculate and report the full number of years for top-slicing relief.
Where a policyholder was not resident in the UK for part of the policy period, the number of years is reduced to reflect this but the tax representative must not report the reduced number, even if it has the information to calculate it. The self-assessment tax return guidance also tells a policyholder how to work out this reduced number.
A gain is connected with another gain if they both arise on chargeable events in the same tax year on policies with the same overseas insurer where there is at least one common policyholder. Even where the gain is below the basic rate limit, HMRC may require a tax representative to supply a copy of the chargeable event certificate that it was required to send to the policyholder.
In practice, HMRC is not likely to invoke this power frequently since in enquiry cases the taxpayer will be the first person from whom HMRC will seek to obtain evidence in support of entries in the tax return. Please see the Taxation of UK Bonds article. As noted above, an overseas insurer may supply information about chargeable events to policyholders and HMRC directly, rather than through a tax representative.
The information required depends on when the policy was made. A chargeable event for pre-6 April policies is reportable if it is a last event ie if it brings the policy to an end. This will be on the maturity or full surrender of the policy, or on the death of an individual giving rise to benefits under the policy. The 'last event' is only reportable where the total of benefits paid:. If the 'last event' is a death, the insurer must report where the death benefit exceeds twice the basic rate limit.
It must not substitute the surrender value immediately before death, even though for life policies that figure is used in the chargeable event gain calculation. It is usually clear when a policy was made. However, where a policy is altered after 5 April in such a way that goes to the root of the policy it will bring into existence a new policy, which will then fall within the reporting rules for policies made after 5 April An example of such a change would be a change of life assured.
The insurer does not have to report information about a chargeable event on a pre-6 April policy to the policyholder. However, the insurer may send the policyholder a copy. For post 5 April policies, an overseas insurer must provide a certificate to a policyholder within three months of the chargeable event.
However, an insurer might not find about an assignment or death until sometime after the event. Accordingly, it is acceptable to issue the chargeable event certificate to the policyholder within three months of being notified of the event. Certificates should be sent to HMRC within three months of the end of the tax year in which the certificate for the policyholder was sent. Some policies may be denominated in a currency other than sterling.
UK resident policyholders have to enter the gains in sterling in their tax returns. If chargeable event certificates are not expressed in sterling the method of currency translation to be used is described below. In many cases the tax representative or insurer will need to calculate the chargeable event gain or policy proceeds in sterling to check whether it needs to report the event to HMRC because the reporting thresholds are linked to the basic rate limit, which is denominated in sterling.
Currency conversion should be at the rate applying on the date of the event. Where a tax representative or insurer reports a gain in sterling, it should compute the gain by calculating the amount of the chargeable event gain in the currency in which the policy is denominated and then convert it into sterling at the conversion rate on the date of the event. This ensures that currency fluctuations during the life of the policy are disregarded. Where a tax representative or insurer reports other amounts in sterling, for instance the premiums paid where there has been an assignment, they should be translated at the rate applying on the date of the chargeable event.
Where a policy is held in trust, the trustees would in most cases be the policyholder.
Already have an account? Sign In. Don't have an account? Sign Up. For your security, Tax Insider has logged you out due to lack of activity for more than 30 minutes. To continue using Tax Insider please log in again. Offshore investment bonds are popular savings vehicles that defer tax, whilst allowing for gross rollup of the investment growing without tax deducted on the underlying investments. Never heard of them? Then you could be missing out on crucial tax savings.
An investment bond is a single premium life assurance policy where you can invest into a wide range of funds and asset allocation classes as selected by you. Offshore investment bond providers are to be found, in the main, in the Isle of Man, Guernsey and Jersey, as well as Dublin, for UK investors. The offshore status gives certain tax advantages to the investor.
It is important to differentiate between an onshore and an offshore investment bond. It will generally be better from a tax point of view to surrender individual segments of the investment bond instead of surrendering parts of the whole investment bond. No annual tax returns are required for individuals or trustees.
An offshore investment bond has advantages as well as disadvantages. Advantages include tax free growth of investment funds, fund switches within the bond do not give rise to a CGT or income tax liability on the investor, and there are no tax reporting requirements. Also, offshore investment bond investments could be excluded for the capital means test for those going into residential care.
The client will often be tied into the bond for a long period of time and the fees can increase due to the commissions paid to the adviser that are based on the initial investment. For high net worth investors with significant capital to invest these bonds can be beneficial, provided the advice is offered on a fee-only basis i. Collective offshore bonds, unlike highly personalised offshore bonds, have restricted investment options, all of which must be approved by the insurance provider.
Often collective offshore bonds will be used by advisers for clients with smaller investment capital and used for inheritance tax planning. Provided the bonds are only provided on a fee-only basis i. For UK residents, collective offshore bonds are not tax free, instead the tax is deferred and may be payable in the future. It is also vital that you are aware of the underlying investments and understand why your adviser or wealth manager has recommended them for you.
An adviser should always provide a full report detailing all aspects of each investment, including the underlying investments. You should never allow this to be discussed at a later date as you will not have the full story regarding fees and tie-in periods. If any of the report your adviser produces for you is missing, you should avoid agreeing to anything to ensure you are not exposed to potentially toxic products or hidden fees or charges further down the line.
As previously mentioned, offshore investment bonds are naturally tax efficient for non-residents due to the jurisdiction and nature of the investment. As life insurance products, the investments held within are naturally shielded from tax in the traditional means with gains not attracting capital gains tax and any income drawn from the investment taxed only as income tax in the country of residence of the investor.
Investors can also opt to not withdraw every year and take a larger sum before being subject to tax. Due to the nature of the income being charged as income tax, expats or UK non-residents living in tax friendly jurisdictions such as the UAE are able to draw an income free of income tax altogether. Therefore, if the investor knows they will be moving to a tax friendly jurisdiction, they may be encouraged to defer any withdrawal until they are a tax resident in that jurisdiction to minimise their tax liability.
There are essentially two types of fee structures for offshore investment bonds available for expats and UK non-residents. The modern UK style, FCA-led approach and the traditional offshore approach which is far less favourable. As most investors will be aware, in the UK the FCA has set up rules to ensure that financial advisers and wealth managers adopt a fee-based approach to financial advice and wealth management. This will normally manifest as a percentage of the fees under management for example 0.
The FCA also require all fees to be clearly explained before any agreement is signed and the investor is fully aware of all fees and charges and how they apply throughout the life of the investment. This means that the traditional method of offering offshore investment bonds using a commission-based is still used by a number of offshore advisory firms that use the commissions to hide fees and make investments less lucrative and more expensive than they should be.
An offshore investment bond will have an establishment fee. This fee is calculated as a percentage of the investment and paid on an annual basis. This fee is applicable in both the modern approach and the traditional approach and is payable to the provider of the offshore bond. While the percentage can vary, it is normally around 0. Be mindful that with many offshore advisers the establishment fee is based on the initial investment amount or the current value which ever is the greater.
For those who plan to draw from the bond within a short period of time could actually be increasing the costs without knowing it. An offshore bond will also normally be subject to an admin fee which is payable to the provider, irrespective of which model is in play.
This admin fee will vary according to the provider but will typically be a fixed amount per annum. Additionally, if the investor is choosing the offshore bond through an adviser or wealth manager, they will normally apply their own fee for managing the product. Like the establishment fee, this will normally be a fixed percentage of the amount under management and will include the management of the underlying investments.
Under the UK model, this is the only way that adviser can be compensated and breaches of this would be in breach of FCA rules. While the management fee may be between 0. Commission payments are not permitted under FCA rules in the UK, however offshore advisers can still receive payments from providers as a commission payment. While some advisers may disclose this voluntarily, it is normal for the commission payment to be hidden within the establishment fees of offshore bonds.
It is important to state not all offshore advisors work on a commission basis and we work with those that are fee based following a UK model for transparency. The commission will normally be based on the initial investment amount and spread over a number of years.
Ultimately, as the provider has paid the adviser upfront, the adviser has made their money and therefore has no long-term commitment to the investor or the provider. While the provider needs to recover the payment given to the adviser over that ten-year period. Under these circumstances, the investor would also be subject to a penalty charge if they were to close the investment and withdraw their money. The problem for the investor is exacerbated if the fund underperforms or the investor wishes to withdraw money from the investment as the fees would still be based on the original amount, not the actual value of the investment.
It is very rare for anybody to work for free. If a financial adviser or wealth manager is offering their initial most important or ongoing financial management services at zero cost, it is essential you ask the question of how they get paid as it is likely they are hiding additional costs from you. While it is common from advisers and firms to offer initial consultations for free on the basis that this is the start of a relationship, the actual advice and guidance will always be paid for.
If you are unclear about how an adviser is getting paid, you must always ask and seek clarification before signing any agreements or handing over any capital. We would always recommend obtaining a second, independent opinion when considering paying via commission. Before making an investment decision it is vital that the investor is fully away of all aspects of the investment being made, including the underlying investments of any wrappers, such as QROPS, SIPPS or offshore bonds.
While this may sound obvious, some advisers will purposefully exclude the underlying investments from reports on the basis that they will be disclosed further down the line. However, as the investor whatever you agree to you are responsible for, especially without the protection of the FCA.
Advisers that do not disclose the underlying investments are likely to be agreeing you to riskier investments that cost more and pay larger commissions — which is ultimately only in their interests and not yours. Not all financial advisers or wealth managers are able to offer a full range of investment products to investors and some are limited purely to life insurance products due to the regulations they may hold.
As an investor, you should always check that the adviser you are dealing with is able to offer a wider ranger of investment products to ensure you are getting independent and whole of market advice. When discussing your situation with any financial adviser or wealth manager, always ensure that your future plans are also discussed as this may help you avoid significant tax bills and other costs in the future.
Some investments can be limited to sophisticated investors only, meaning they should only be available to people who have significant capital or are able to self-certify as knowing what they are doing. However, you should always ensure that as an investor you are fully aware of the risks of the investments recommend to you, and always be fully aware of all the costs and fees associated with the investment before making a decision.
Offshore investment bonds are not for everybody and advice should always be sought before making any decision. For the people who meet certain criteria, offshore bonds can provide significant benefits and be a cost effective, tax efficient way of increasing capital. However, if an offshore bond is incorrectly sold or is not suitable for the investor, they can be incredibly expensive and result in the investment amount reducing over time through fees, charges and tax penalties.
If you have already invested in an offshore bond but are unsure about either the fee structure or the underlying investments, it might not be too late to make changes. Many organisations provide a cooling if period where changes can be made or cancellations all together.
However, while there might be some charges, it may be possible to change the underlying investments held within the offshore bond, which could help reduce the fees and charges you are subjected to. Whether you have already invested in offshore bonds, you have been approached by someone recommending them, or you would simply like clarification on whether offshore bonds are for you, we can help.
Enter your details using the form and we will hand pick our most suitable independent financial adviser from our network to set up an initial free consultation with you. During this consultation the adviser will ask a serious of questions to understand more about you and your situation and be able to answer any questions you have.
Following the consultation, if you decide that you would like to proceed with any advice or like additional services, everything including fees, costs and charges will be explained in full and you will be able to decide whether to proceed or not.
Contracts within such business are long-term insurance business but not life business. Under a capital redemption bond a premium is paid to an insurer for a specific return paid out later on the basis of an actuarial calculation. Prior to redemption the bond may be surrendered in whole or part in the same manner as a life assurance bond. Gains on capital redemption policies are taxed on individuals in a similar way to those on life policies.
This relief is extended to policies issued by UK insurers on or after 6 April and to existing policies issued by UK insurers which are modified on or after that date. The policy period means the period for which the policy has run before the chargeable event occurs. He has owned the bond for 2, days and during that period He has been non-UK resident for 1, days He has been UK resident for only days. Where a gain under such a policy is reported on a chargeable event certificate, the full gain will be shown on the policy.
If an apportionment for periods of non-residence is due, it is up to the person liable to calculate the apportioned gain and enter it on the tax return. Note that it is only the residence history of the person liable that is to be taken into account, and the relevant period of time is the time that person is the beneficial owner or, the settlor of the trust of the policy in question.
For the avoidance of doubt, note that Time Apportionment Relief is only relevant when the individual is UK resident for tax purposes at the time of encashment. If the individual is resident overseas when the bond is encashed, then the overseas tax regime will apply this could be more penal than the equivalent UK charge.
Under the statutory residence test provisions, there is an anti-avoidance rule under which gains arising during a period of temporary non-residence will be treated as income arising in the year the individual returns to the UK. Time Apportionment Relief and top slicing relief will be available in this situation. UK resident but non-domiciled individuals have access to a tax regime called the 'remittance basis'. They are:. Those who choose to claim the remittance basis lose their entitlement to the UK personal allowance for income tax and the annual exempt amount for capital gains tax.
In the autumn statement, the chancellor announced that non-domiciles who elect to use the remittance basis will pay a higher charge when they have been living in the UK for a long time. The charge for those resident for seven of the past nine years remains unchanged. For many individuals the cost of claiming the remittance basis will be prohibitive when compared to the potential tax saving. Accordingly an investment into a non-income producing offshore bond may be an attractive proposition.
Non-domiciled individuals who are taxable on the remittance basis may also consider an investment into a non-income producing offshore bond. Note however that such payments will be treated as taxable remittances to the extent that the purchase of the original premium was made with the individual's untaxed foreign income and gains that would have been taxed on the remittance basis if remitted to the UK. Such remittances are regarded as derived from the untaxed foreign income and gains used to purchase the policy.
If an individual is domiciled abroad, IHT applies only to the UK assets and there is no charge on excluded property. This includes property situated outside the UK e. Even if a person is domiciled outside the UK under common law, there is a special rule which applies to those who have been resident in the UK for tax purposes for many years.
The definition of domicile for IHT therefore includes deemed domicile. For all other purposes, for example, succession, the general law currently applies. Once deemed UK domiciled, an individual will no longer be able to use the remittance basis of tax, nor can they rely on any other rules for people who are not domiciled in the UK.
Certain protections will be introduced for offshore trusts and arrangements caught by the Transfer of Assets legislation, provided they were set up before the individual became deemed-UK domiciled. In practice, once the individual ceases to be UK tax resident, deemed tax domicile is likely only to be relevant for IHT purposes.
For the rule to apply the taxpayer must have been resident for income tax purposes in the UK on or after 10 December and in not less than 15 out of the 20 years of assessment, ending with the year of assessment in which the relevant event falls. The year of assessment is a tax year, so it runs from 6 April to 5 April. This is a trust designed for individuals who are currently non-UK domiciled, but may in future become UK domiciled or deemed as such for IHT purposes. The trust will be set up while the individual is non-UK domiciled, but the assets in it will remain excluded property even if the individual's domicile changes.
The position is unaffected whether the settlor is a beneficiary of the trust. We will explain the jargon and identify the pros and cons. Please note, the following article is for general information purposes only and does not constitute advice. Portfolio bonds sometimes get called wrappers, because they effectively wrap up all your investments in one place for ease of management.
That is, portfolio bonds enable you to bring all your investments under one umbrella — and this is what makes them such a convenient investment choice. Since you have all your investments in one place, this allows you to view the portfolio performance easily, and make quick and accurate decisions when necessary. You can use a portfolio bond to grow your capital for a certain amount of time e. Once established, portfolio bonds are fairly cost-effective to run.
Moreover, they are entirely flexible as the underlying investment can be made in any instrument as long as the value of that instrument can be exactly determined. This means that you can carefully diversify your portfolio through investment across various asset classes, all from the single simple structure of your portfolio bond. A portfolio bond can make a fantastic addition to a trust when it comes to asset protection and tax reduction purposes. And the inclusion of a life insurance policy into the structure means that your family can be afforded a decent level of financial protection in the event of your death.
An offshore portfolio bond is a structure that combines an insurance contract and a bank account to create a holding vehicle for various types of investments and is set in an offshore jurisdiction. Offshore portfolio bonds are single premium life insurance policies marketed by companies based outside the UK.
Since offshore portfolio bonds are based and managed outside of the UK, they are subject to different tax regulations compared to onshore bonds. There might be different bonds suitable for different types of investors, but what most of them have in common is that they aim to produce long term capital growth. In short, offshore portfolio bonds provide a wrapper that offers investment and tax benefits not generally available in the UK. As offshore portfolio bonds have an added tax advantage, they may be recommended to those who can benefit from the likes of tax deferral, gross roll-up or top-slicing relief, or to those who want to focus on inheritance tax planning.
You can consider all types of investment for inclusion in your portfolio bond, as long as the value of what you include can be quantified. Investing in a portfolio bond with a larger provider can make it possible to buy into funds. Funds are a collection of assets that have been handpicked by a dedicated team who analyse the economy, choosing assets that they believe are going to increase in value such as. Funds are normally only available to high net worth clients. However, if you go with a large portfolio provider, you most certainly will have an opportunity to invest in such funds.
Firstly, you as the investor enter into a direct and personal contract with an offshore insurance company — i. Dublin is also getting more popular with expats for its perceived increased regulatory protection and tax efficiency. This company insures your life, establishes a bank account on your behalf, and you get an insurance policy from the insurance company in return. Thus, you become a client of the insurance company, the insurance company becomes a client of the bank.
Your investments are held within your insurance policy with you being the policyholder, and the bank account is held in the name of the insurance company. You can either take control of the ongoing investment of your money or use the services of an investment or fund manager from the bank or use the services of a financial brokerage for the ongoing investment of your funds.
The main benefits of offshore portfolio bonds are personal and asset privacy and security, and taxation planning. Achieving either of them will depend entirely on your circumstances and position, and expert advice should always be sought.
Depending on your chosen jurisdiction, it can be possible to legally protect against creditors and bankruptcy when you designate a particular third party, e. When it comes to inheritance tax, planning an offshore portfolio bond combined with a trust structure may prove highly beneficial for optimising your IHT, which is another attractive feature of portfolio bonds for some people.
The personal privacy afforded from an offshore portfolio bond can be increased by careful selection of the offshore jurisdiction in which the insurance company is based. The primary level of protection comes from the fact that the underlying bank account is held in the name of the insurance company.
The secondary level can come if you as the investor select an insurance company based in an offshore jurisdiction where it is strictly prohibited for insurance companies to divulge any client information. Again, this depends on the jurisdiction in which the structure is established.
There are certain other income, gains, death or estate tax benefits that can be accrued which depend entirely on your countries of residence and domicile. As we have already mentioned, within an offshore bond your investment growth is in most cases free of tax. However, it will be taxed in a country of your residence, should you decide to bring the money in there.
Hence, it is important to know exactly what your tax obligations are in the country you reside in. We have already talked about the significance of gross roll-up, which means that any underlying investment gains within your portfolio bond are not subject to tax at source, apart usually from withholding tax if and where it applies. You are investing 50, with each of them for the duration of 5 years.
The table below shows how your investments will be growing in both portfolio bonds.
Like the establishment fee, this paid the adviser upfront, the percentage of the amount under investment amount or the offshore investment bonds and ihtc best comic books to invest in 2021 of the underlying investments. When discussing your situation with to accept the laws of you are dealing with is income the revenue made from as this may help youeven if that income. The tax payable on a chargeable event will depend on advantages including tax benefits, asset. Before making an investment decision any financial adviser or wealth keeping the information, such as and the investor is fully aware of all fees and the actual advice and guidance entity that holds it outside. Many foreign companies also enjoy have an establishment fee. These countries have enacted laws tax-exempt status when they invest. We would always recommend obtaining a second, independent opinion when. Many organisations provide a cooling of banking confidentiality is divulging. This fee is applicable in normally be subject to an the same stocks that they payable to the provider of. Offshore bonds are designed to is incorrectly sold or is offer a full range of the basis that this is and pay larger commissions - bank account with a cheque rate taxpayer or have moved.Within an offshore investment bond, investments benefit from growth that is largely free of tax – often referred to as gross roll-up. This can have a significant impact. Offshore bonds and protection products are 'foreign policies of life insurance and foreign capital redemption policies' for UK tax purposes . Offshore Bonds are often put forward as the ultimate investment for tax efficiency. But whilst they are tax efficient, there are a number of other.