Why Offshore?
Thousands of investors from all walks of life now invest offshore. What are the benefits of investing offshore?
Virtual tax-free growth
Often referred to as the ‘gross roll-up’ effect, investment in an offshore bond grows virtually free of year-on-year Income Tax and Capital Gains Tax charges, unlike comparable onshore bonds which suffer tax on any growth. Small amounts of irrevocable with-holding tax may be payable on certain investment funds.
No Capital Gains Tax
Fund switches made within offshore bonds do not trigger a Capital Gains Tax liability. Such switches within a portfolio of onshore direct equity or unit trust investments would incur a Capital Gains Tax charge in that tax year during which the switches were made. Offshore bonds often therefore provide a more tax efficient structure for active investment management.
Access to your money
Offshore bonds enable you to have access to some or all of your investment monies should you need to. As offshore bonds are long term investments there may be some penalties which apply if you withdraw your money in the early years.
You can take regular withdrawals from most offshore bonds, accessing your capital in a tax efficient way by withdrawing up to 5% of total premiums paid every policy year as "income" . This 5% amount can be taken every year for 20 years, or accumulated over a number of years and withdrawn less frequently without triggering a chargeable event for tax purposes (a chargeable event occurs when you withdraw in excess of 5% per policy year or you cash in your bond in full, triggering a potential Income Tax charge).
Tax control
Tax deferment is a key feature of offshore bonds. This enables you to choose when a tax charge may occur, as this will be when you cash in some or all of your bond. The tax payable at the point of a chargeable event will depend on your highest marginal rate at that time. This allows you to defer such an event until you are either no longer a tax payer or have moved from being a higher rate tax payer to a lower or basic rate tax payer or have moved to a country with low taxes.
Inheritance Tax Planning
Structuring your assets through an offshore bond held in trust can mitigate, or avoid altogether, taxes due when transferring wealth.
Self Assessment friendly
As offshore bonds are non-income producing assets there is nothing for you to report to Her Majesty's Revenue & Customs until a chargeable event occurs e.g when you cash in more than 5% of total premiums paid. You do not have to include any information on your tax return before this point, compared with the potentially complicated requirements for reporting a portfolio of unit trusts. At the point that you do need to include information on your tax return under self assessment, it is also generally much simpler to report income from an offshore bond.
Finally, please note that every care has been taken to ensure that the information provided is correct and in accordance with our understanding of current law and Her Majesty's Revenue and Customs' (HMRC) practice as at November 2010. You should note however, that we cannot take on the role of an individual taxation adviser and independent confirmation should be obtained before acting or refraining from acting upon the information given. The law and HMRC practice are subject to change. Legislation varies from country to country and the policyholders country of residence may impact on the above.
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