Offshore Bonds and Trust Planning

Offshore Bonds and Trust Planning

If you have accumulated worthwhile amounts of capital then you may be considering tax-efficient options for investing large amounts of capital. Offshore Bonds and Trust Planning are often combined if you intend to give away your assets at some point.

Offshore bonds are investment wrappers set up by life insurance companies in an offshore jurisdiction with a favourable tax regime. That means that while the bond is invested you do not normally have to pay tax on it, this is particularly useful when making capital gains – hence the expression – gross roll up.

In effect when you invest in an offshore bond you enjoy a tax holiday and this allows the investments to grow largely without reductions for tax. The benefits of growing capital without paying tax are significant.

You can withdraw down up to 5 per cent of the amount of the original capital sum, and effectively defer the tax bill on these payments.

Over and above the 5 per cent annual allowance you pay income tax.

Offshore Bonds are very useful for family financial planning

Families who establish trusts to provide for protection of assets and for passing capital to next generation are faced with the trust assets suffering onerous tax payments of 45 per cent income tax and 28 per cent capital gains tax (CGT), but if the trust invests in an offshore bond then it does not.

Investment bonds are non-income producing assets for UK tax purposes so details of the bond do not have to be included on a tax return until a taxable withdrawal is made.

If you plan to retire or move abroad an offshore bond could be useful as when you encash you will not incur UK taxes. On realising the investment, any potential tax charge is dependent on your country of residence.

The 5% tax holiday withdrawals, if not taken, will accumulate and can be paid out later, we have found this very useful for pre and post retirement planning.

These bonds are also very beneficial if you assign part or the entire offshore bond to a non-taxpayer.

Final points on Offshore Bonds

Offshore Bonds have higher charges than onshore bonds, Offshore Bond providers differ in that some offer restricted fund choices others have a very wide range of funds. In order to overcome the higher charges you should consider offshore bonds with a wide range of available dynamic growth oriented funds, particularly investment trusts.

To maximise the tax planning opportunities you need to find an experienced adviser, who understands the many lateral planning opportunities offshore bonds provide and can also provide the investment capability required.

Registered in England and Wales. Registered Number 5553273.
Registered Address: 8f Millars Brook, Molly Millars Lane, Wokingham, Berkshire, RG41 2AD.

A pension is a long-term investment that typically cannot be accessed until age 55 (57 from April 2028). The level of pension benefits offered could change depending on the value of your investments (and any income they may generate).

The interest rates in effect at the time you begin receiving benefits may also have an impact on your pension income. The tax consequences of pension withdrawals will depend on your unique situation. In later Finance Acts, tax rates, tax bases, and tax relief may change.

The opinions expressed by Ray Best are meant to inform and educate. Before making any investment decisions always take advice that is pertinent to your investment personality and financial situation.

You are aware that past performance will not necessarily be repeated in the future, but you should be aware that persistent poor performance invariably will.

The value of an investment and the income from it could go down as well as up.

The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.

UnaVida Wealth Management Ltd. is directly authorised and regulated by the Financial Conduct Authority (440577).

The guidance in this website is primarily aimed at a UK audience and is subject to regulation by the Financial Conduct Authority (FCA).

The Financial Conduct Authority does not regulate tax planning, estate planning, or wills and any form of legal documentation.