Offshore Bonds are usually based in low tax jurisdictions like
Guernsey and enable investment returns to be rolled up without tax
- unlike the onshore variety.
The offshore version may be suitable for investors who are UK
resident but non-UK domiciled for tax purposes or those who are UK
domiciled for tax. They may also suit non-taxpayers or non-UK
residents when they come to encash their bond.
They are also worth considering if you are a higher rate
taxpayer, including someone who has utilized their capital gains
tax allowance.
Investors are able to switch investments without incurring
capital gains tax if an offshore bond is use. They are especially
valuable for retirement planning, providing gross roll-up during
working life and reduced tax on encashment when work finishes.
Offshore Bonds can be used as part of school fees planning.
Investment can be made in trust for a child and encashed by them on
becoming a student.
A higher rate, taxpaying spouse might use thesebonds to pass
capital to the non-taxpaying partner, who invests in an offshore
bond. This will enjoy gross roll-up and can be encashed without tax
liability. This type of bond should also be considered in relation
to inheritance tax planning. Unlike onshore bonds, there is no need
for an insurable interest so offshore bonds can be written on the
lives of children and grandchildren.
Both Onshore Investment Bonds and Offshore Investment Bonds
are single premium life policies within which income and gains
may be rolled up.
Onshore Investment Bonds have some similarity to unit trusts and
investments trusts but their major difference is that they are
written under life insurance legislation. The life insurance
element is generally minimal, with the major part of the investment
applied to investment funds. A with-profit bond sees investment
performance linked to bonuses that are attached to the policy each
year, with a final bonus applied upon maturity or encashment.
Under this scheme, different asset classes are selected by the
fund manager for investment of the policyholder's funds. The bonus
rate applied is based on an assessment of what the fund is expected
to achieve after allowing for all expenses and the retention of
some profit to build up its reserves.