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.

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