Offshore Investments

What is it?

An Offshore Unit Linked bond is a single premium investment policy that provides an investor with the potential for capital growth and income if required.  They offer the investor an opportunity to invest in pooled or collective funds that provide access to a wide range of investments.

Who is it for?

Due to their offshore status these bonds will generally appeal to those who are, or intend to be non-UK resident for tax purposes as well as trustees of both on-shore and offshore trusts.  Such investments are broadly neutral for UK based taxpayers so an on-shore bond may be more relevant.

How does it work?

The capital amount is invested in a fund or funds that are sub-divided into units each representing an equal share of the net asset value of the fund.  As the fund fluctuates, then the value of the units rise or fall

Tax situation

Because they are based in tax havens, Offshore Bonds generally enjoy gross roll up of investment income and gains.  The exception to this is the withholding tax applied to dividends – a tax credit at basic rate is granted on dividends received by on-shore funds whereas no such credit is given on those received by off-shore funds.

Any gains upon full or partial encashment, or withdrawals in excess of the annual 5% allowances in the hands of a UK tax payer or trustee would be subject to income tax at their marginal rate.  Top slicing relief, whereby the gain is aggregated over the number of years the bond has been held, is available in respect of higher rate tax.

The tax due non encashment is very much dependent on the investors tax position in the year of encashment. For those who have the ability to manipulate their income level investment bonds can prove to be a highly tax efficient investment vehicle.

For non-UK tax residents tax free growth is enjoyed however any receipts, whether taken in the form if income or withdrawals, would need to be clarified within the then country of residence.

NB...The favourable tax treatment currently available for Offshore Bonds might not continue in the future.