Donate to Remove ads

Got a credit card? use our Credit Card & Finance Calculators

Thanks to Gostevie,JuanDB,Anonymous,elkay,barchid, for Donating to support the site

Offshore bonds

Practical Issues
bowman
Posts: 4
Joined: September 5th, 2017, 11:00 pm

Offshore bonds

#400676

Postby bowman » March 31st, 2021, 8:34 pm

I'm starting to build up a reasonable sum outside of my pension and ISA and (fortunately?) going to have cap gains each year beyond the annual allowance, + dividend taxes are adding up. Starting to look at my other options- and have found a few references to offshore bonds.

Theres certainly no free lunch, but potentially could reduce my tax bill but offset by fees/commissions. Does anyone have a/ any personal experience b/ aware of any fee only IFAs who could set me up 'execution only'?

mc2fool
Lemon Quarter
Posts: 2645
Joined: November 4th, 2016, 11:24 am
Has thanked: 6 times
Been thanked: 870 times

Re: Offshore bonds

#400690

Postby mc2fool » March 31st, 2021, 10:02 pm

I had one of those a decade or two ago. As you say, fees/commissions, although mine was pre RDR. Also look out for any limited choice of funds and/or a limited choice of classes of funds; although, again, that may have changed.

I take it you are aware that, while all transactions within the bond are free of any tax, you can only withdraw 5% of your invested amount a year for 20 years free of tax? It is cumulative, so if you don't withdraw anything in, say, the first four years then in the fifth year you can take of 25% of your invested amount tax free. In other words, you have 20 years to take out the money you put in free of tax, but if you take out more than 5% (cumulated) a year and/or after you've taken out 100% of the money you put in, then the rest is taxed at your marginal rate of income tax.

I don't know of any execution only IFAs that do offshore bonds, but MoneyWorld does the onshore ones and might do offshore ones, if you ask. https://www.moneyworld.com/investment-bonds/

Nimrod103
Lemon Quarter
Posts: 3670
Joined: November 4th, 2016, 6:10 pm
Has thanked: 47 times
Been thanked: 255 times

Re: Offshore bonds

#400751

Postby Nimrod103 » April 1st, 2021, 9:20 am

I have a small amount in an offshore bond from when I first worked abroad. long long ago. I'm not even sure I can find all the relevant paperwork due to things going astray during subsequent moves, and the managment of the bond has changed hands at least 3 times. I'm not even sure the managing company could find the relevant paper trail.
If I repatriated the funds, how would they be taxed?

mc2fool
Lemon Quarter
Posts: 2645
Joined: November 4th, 2016, 11:24 am
Has thanked: 6 times
Been thanked: 870 times

Re: Offshore bonds

#400788

Postby mc2fool » April 1st, 2021, 10:41 am

Nimrod103 wrote:I have a small amount in an offshore bond from when I first worked abroad. long long ago. I'm not even sure I can find all the relevant paperwork due to things going astray during subsequent moves, and the managment of the bond has changed hands at least 3 times. I'm not even sure the managing company could find the relevant paper trail.
If I repatriated the funds, how would they be taxed?

Surrendering the policy will be a "chargeable event" and the gain will be taxed at your marginal rate of income tax. However, if it causes you to change bands, e.g. from BRT to HRT, then "top slicing" relief is available.

See https://www.aesinternational.com/wealth/reviews/offshore-investment-bonds/what-are-offshore-investment-bonds, and many other explanations (which may or may not be clearer!) if you google for offshore investment bond taxation.

If you've had it a long time then good chance they are still paying trail commission to the IFA that set it up for you, so if you can find the paperwork you might want to try and get him to do some work and figure it out for you. :D

Nimrod103
Lemon Quarter
Posts: 3670
Joined: November 4th, 2016, 6:10 pm
Has thanked: 47 times
Been thanked: 255 times

Re: Offshore bonds

#401202

Postby Nimrod103 » April 2nd, 2021, 7:22 pm

mc2fool wrote:
Nimrod103 wrote:I have a small amount in an offshore bond from when I first worked abroad. long long ago. I'm not even sure I can find all the relevant paperwork due to things going astray during subsequent moves, and the managment of the bond has changed hands at least 3 times. I'm not even sure the managing company could find the relevant paper trail.
If I repatriated the funds, how would they be taxed?

Surrendering the policy will be a "chargeable event" and the gain will be taxed at your marginal rate of income tax. However, if it causes you to change bands, e.g. from BRT to HRT, then "top slicing" relief is available.

See https://www.aesinternational.com/wealth/reviews/offshore-investment-bonds/what-are-offshore-investment-bonds, and many other explanations (which may or may not be clearer!) if you google for offshore investment bond taxation.

If you've had it a long time then good chance they are still paying trail commission to the IFA that set it up for you, so if you can find the paperwork you might want to try and get him to do some work and figure it out for you. :D


Thanks. Does that mean whole sum is taxed, or just the gain?
Taxing the original sum invested seems to be a little harsh.

mc2fool
Lemon Quarter
Posts: 2645
Joined: November 4th, 2016, 11:24 am
Has thanked: 6 times
Been thanked: 870 times

Re: Offshore bonds

#401213

Postby mc2fool » April 2nd, 2021, 7:58 pm

Nimrod103 wrote:Thanks. Does that mean whole sum is taxed, or just the gain?
Taxing the original sum invested seems to be a little harsh.

Assuming you haven't previously made any withdrawals or part/segment surrenders, then it's just the gain. If you have then it's complicated!

The company will issue a chargeable event certificate specifying the taxable amount.

BTW, I've no recent experience of these and as such my knowledge is historical, and while from the couple of articles I've looked at it seems like everything is unchanged from the way I knew, I do recommend you DYOR. ;) When researching be aware that offshore bonds are taxed differently to onshore ones.

bowman
Posts: 4
Joined: September 5th, 2017, 11:00 pm

Re: Offshore bonds

#405463

Postby bowman » April 19th, 2021, 8:24 pm

Apologies for not replying sooner and thanks all for the responses.

mc2fool: thanks for the suggestion- I followed up with moneyworld but apparently none of the providers offer offshore bonds on a non-advised basis.

I'm speaking with a financial advisor later this week, will post here if it turns out interesting / fees can be reasonable.

EviesDad
Posts: 11
Joined: August 24th, 2018, 3:43 pm
Has thanked: 2 times
Been thanked: 3 times

Re: Offshore bonds

#409160

Postby EviesDad » May 4th, 2021, 7:56 am

My Mother has an offshore bond with Canada Life International taken out 20yrs ago as part of an IHT mitigation product which came bundled with a trust fund. Charges for the bond are approx £900pa and is limited to 140 funds all of which are expensive at around 1.5%amc.

I think investment bonds only really work if you feel you are going to be a lower rate tax payer in the future than you are now or if you have unused income tax allowance. But personally I would stick with a GIA given that CGT rates are currently lower than income tax rates. Though one of the benefits of investment bonds is that they can be assigned to someone else such as a spouse which could offer some tax flexibility.

bluedonkey
Lemon Slice
Posts: 746
Joined: November 13th, 2016, 3:41 pm
Has thanked: 393 times
Been thanked: 247 times

Re: Offshore bonds

#409213

Postby bluedonkey » May 4th, 2021, 11:48 am

I'm very wary of bonds*, and even more wary of offshore bonds. They are designed to look great to the buyer whilst producing a great deal of commission for the financial adviser.

*bonds defined as non-qualifying life assurance policies.


Return to “Taxes (Practical)”

Who is online

Users browsing this forum: No registered users and 4 guests