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The number of Offshore Bonds on the market (sometimes referred to as Professional Portfolio Bonds) are varied and offer different advantages to investors depending on their individual requirement. There a distinctive tax advantages, ease of administration and significant cost savings - let us guide you to the right solution and here is some background particularly on the taxation benefits.
TAX FREE GROWTH OF FUNDS
The underlying investment funds linked to a bond are owned by the Life Company. All income and capital gains arising within the funds are reinvested into units within the fund. As many are based in the Isle of Man (the world-leading jurisdiction for offshore insurance) it does not pay tax on income or capital gains within the underlying funds. Therefore, once invested, and apart from any withholding of tax deducted at source, an investor’s capital can accumulate entirely free of tax.
TAX DEFERRAL
Because income and gains grow free of tax the policyholder can defer any tax liability on their capital until the benefits are taken. The ability to defer tax gives the investor the opportunity to decide when to pay tax, for example, people who intend to become resident in a country that does not tax investment bonds, or people whose income will fall or non tax payers who can offset gains against any unused personal allowances. In most countries bonds are considered non-income producing.
TAX EFFICIENT ACCESS TO CAPITAL VIA WITHDRAWALS
In the UK an amount equal to 5% of the premium paid can be taken each year for a maximum of 20 years without incurring an immediate income tax liability. The ability to defer tax means that, with proper, well structured planning and timing, funds can be extracted in a tax efficient way via withdrawals. With portfolio bonds this avoids the necessity of selling funds to obtain an income.
INVESTMENT CHOICE
Access to the world’s major currencies, to a range of world-wide funds and expert specialist fund managers with proven expertise. The greater the access, the greater the scope for successful investment. A bond offers the ability to restructure and change investment policy within the bond without changing investment vehicle
BETTER TERMS
As an institutional investor, most Life Offices generally can obtain better discounts/terms from investment houses than an individual could on investment funds and these are passed on to the policyholders.
INVESTOR PROTECTION/PEACE OF MIND
Policyholder Protection- the Isle of Man Life Assurance ( Compensation of Policyholders ) Regulations Act 1991 provides up to 90% of an insurer’s liability to the policyholder, in the unlikely event that the company should go into liquidation. There is no upper limit to the amount of compensation that can be paid. The Isle of Man was the first offshore centre to be granted Designated Territory status by the U.K. This makes the Isle of Man one of the best regulated International Finance centres in the world.
CGT FREE SWITCHES
By actively managing a portfolio of funds the investor can switch between funds without incurring any tax liability. Normally any fund disposals incur a capital gains tax liability if funds are held directly depending on the country of residence.
ADMINISTRATIVE CONVENIENCE
Regular valuations keep you the investor informed about the progress of the bond via a comprehensive statement detailing all transactions and funds held. For a high net worth client with numerous investments throughout the world centralising the assets under a bond wrapper may be attractive as on death this would only involve obtaining Manx Probate rather than probate in each country the assets are held in. A professional administration service carrying out all transactions and involving the minimum amount of client time is available. Clearly for a wealthy investor this takes away all the time consuming hassle of paperwork.
TRUSTEE INVESTMENTS
Offshore bonds are ideal Trustee investments as they are non-income producing and offer true tax deferral and little administration to trustees. We have several trust solutions for our potential clients.
POLICY ASSIGNMENT
It is also possible to change the policy owner by assignment. In general, the new policy owner can then surrender the policy and any tax liability will fall on them. If the new owner is say a non-tax paying spouse she can offset her unused personal allowances against any gains and pay less tax than would have been paid otherwise.
NON RESIDENCE RELIEF-UK EXPATS
Any periods of non-residence will be relieved of income tax and on final encashment top-slicing relief may be used for any periods of UK residence if the tax payer is within the basic rate tax band. This may keep the taxpayer within the basic rate band and save 18% tax on any chargeable amounts.
CGT V INCOME TAX
Until now, it has been a feature of UK tax law that individuals who made capital gains were not chargeable to UK CGT if the gain was realised while they were non-UK resident or ordinarily resident. Clause 127 Finance Act 1998 changes that position. Under the new rules, individuals who have been UK resident for at least four out of the previous seven tax years prior to the tax year of departure will continue to be liable to UK CGT on disposals they make whilst non-resident if they return to the UK within five years. The new rules apply to individuals who leave the UK after 17th March 1998, and apply to assets they held prior to their departure. If the individual is UK domiciled, the charge will be on worldwide assets.
An alternative and potentially much safer approach for such individuals would be to contribute to investments which are not subject to CGT i.e. offshore regular and single premium life assurance policies. They are fully portable, as the investor moves from jurisdiction to jurisdiction. In most countries, no tax charge arises until the benefits are taken. Under UK tax law the proceeds are subject to income tax, and thus not affected by the new CGT rules.
As a means of saving for future expenditure or retirement by UK expatriates, offshore life assurance policies are simple, tax efficient and flexible investment vehicles, that avoid the headaches associated with the new UK CGT regime.
For a full appraisal of the uses of Offshore Bonds with your financial planning and how they can help you reduce investment charges, ease administration and protect your assets from unfriendly tax authorities, contact us today and speak to one of our qualified consultants.
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Offshore Bonds 
