Virtual tax-free growth
· An investment in an offshore bond grows virtually free of year-on-year income tax and capital gains tax charges, as the provider does not pay tax on the capital growth or income which accrues to its funds, unlike comparable onshore bonds which suffer tax on any growth. However, small amounts of irrecoverable withholding tax may be payable on certain holdings, such as dividend payments (paid net of 10% income tax).This tax treatment is often referred to as the ‘gross roll-up’ effect.
No capital gains tax
· Fund switches made within offshore bonds do not trigger a capital gains tax liability, whereas switches within a portfolio of direct equity or unit trust investments would incur a capital gains tax charge.
· Therefore, offshore bonds often provide a more tax efficient structure for active investment management and alterations to an investment strategy.
Access
· You have the right to surrender your investment within an offshore bond, either wholly or in part, at any time. This means that the value of the policy can be readily realised.
INCOME
· You can take regular withdrawals, enabling you to access your capital in a tax efficient manner by withdrawing up to 5% of each investment amount every year as “income”.
· This 5% amount can be taken every year for 20 years, or accumulated over a number of years and withdrawn less frequently without triggering a ‘chargeable event’ for tax purposes (a ‘chargeable event’ occurs when you withdraw in excess of 5% a year, or you cash-in your bond in full, triggering an income tax charge).
Tax control
· Investing money within an offshore bond enables you to choose when an income tax charge may occur, as this will be when you cash-in some or your entire bond. The income tax payable upon a chargeable event will depend on your highest marginal rate at that time.
· An offshore bond therefore allows you to defer such an event until you are either no longer a tax payer or have moved from being a higher rate tax payer to a lower or basic rate tax payer or have moved to a country with lower taxes.
Inheritance tax planning
· Structuring your assets through an offshore bond held in Trust can mitigate, or avoid altogether, taxes due when transferring wealth. Assets above the nil rate band threshold that are not held in Trust may be liable to inheritance tax at 40%. Additionally, an offshore bond and Trust can be structured to allow access to the funds prior to your death.
Self assessment friendly
· As offshore bonds are ‘non-income producing assets’ there is nothing for you to report to HM Revenue & Customs until a chargeable event occurs.
· You do not have to include any information on your tax return before this point, compared with the potentially complicated requirements for reporting a portfolio of unit trusts. At the point that you do need to include information on your tax return under self assessment, it is also generally much simpler to report income from an offshore bond.
Investor Protection
· Products sold in the UK have to meet all the Financial Services Authority’s product and promotion rules.
· The offshore providers recommended by Pearson Jones plc are based within some of the world’s most highly regulated jurisdictions. The Republic of Ireland is a full EU Member State whilst the Isle of Man is a UK dependent territory. These jurisdictions have been thoroughly scrutinised by global monitoring bodies and have received recognition for their strong regulatory controls and investor protection measures.
· The providers recommended by Pearson Jones plc are reputable life companies, whose brands are household names in the UK. These companies are fully covered by their home state regulation.
VALUATIONS
· You will normally receive a valuation of your investment on a quarterly basis.
As is evident from the points already detailed, Offshore Investment Bonds provide many advantages and typical investors include;
- UK Residents
- Bank Account investors
- Trustees
- Companies
- Non-Domiciled individuals
The information contained in this document is based upon Pearson Jones plc’s current interpretation of HM Revenue & Customs practice and tax legislation as at November 2007. Whilst great care has been taken to ensure that the information is correct, you will appreciate that Pearson Jones plc cannot accept liability for any loss suffered by any person as a result of action taken or refrained from on the basis of the above. Advice should be taken before any investment is made or tax strategy implemented. The value of tax benefits depends on individual circumstances and can change.
The value of your investment can fall as well as rise and past performance is no guarantee of future returns. The amount invested is not guaranteed and you may get back less than you originally invested.
Some Offshore Bond contracts have early exit penalties imposed if you surrender your holding within a set timescale. Of course, any exit penalties would be highlighted to you, by your Pearson Jones plc advisor, prior to making your investment.