Deborah Benn 20th March 2010 12.20pm
We take a look at what offshore bonds can do for you.
Offshore bonds are a clever way of effectively placing a ‘tax wrapper’ around your investments to ensure you make the most of any tax planning opportunities while you live and work abroad. Below we have listed the main advantages as well as some things to watch out for.
Flexibility: A wide choice of investment possibilities. You can place cash deposits, funds as well as OEICs and alternative investments into an offshore bond.
Tax control: A key feature of offshore bonds is the ability to time (where possible) any investment withdrawals - called a chargeable event - to coincide with when you are in a low tax bracket or low tax jurisdiction. This is called tax deferment.
Tax advantages: With the exception of any possible withholding tax, your investments grow tax free. You will of course have to pay tax when you cash in all or part of your investment depending on the tax regime where you are resident, although as explained above encashment can be timed to ensure you are not in a high tax bracket. However, fund switches will not trigger a tax liability within an offshore bond and you do have the right to withdraw up to 5% of the initial investment each year for 20 years without an immediate charge to tax.
Trust: You can place offshore bonds in trust, which will help with inheritance tax planning.
Segmentation: The offshore bond can be split into a number of different segments, which helps to realise gains tax efficiently over a number of years.
Household names: Many of the offshore bond providers are offshore arms of UK financial service companies such as Axa and Prudential.
Things to consider: