Taxation of offshore solutions – for UK investors

Investing in an offshore bond can provide considerable benefits for British expatriates. Here are some of the key tax benefits.

Tax-free growth

Investments held within the international jurisdictions we use grow virtually free of income tax or capital gains tax. Some funds may be liable for certain types of taxes which cannot be reclaimed. This is known as withholding tax. This tax is deducted at source, for example from dividend income.

Control the timing and level of tax you pay

When you withdraw money, you may be liable for local taxes on any gains, depending upon where you live. However, you have control over when and how much you withdraw, and this can help reduce any tax liability. For instance, circumstances permitting, it may be advantageous to hold off making withdrawals until you are resident in a country with a low tax rate or when you are in a lower tax bracket.

Reduced tax on gains when returning to the UK

For British expatriates who return to the UK, gains are reduced by a fraction which represents the number of years you were UK tax resident in comparison to the number of years you held the policy. Additional investments are regarded as having been made at the start of the bond policy (even if they are top-ups or regular premiums made when you are UK resident again), increasing the relief given.

Take 5% of your investment tax-free

You can withdraw up to 5% of your initial investment free of income tax each year and defer any tax payable until you have withdrawn your original investment or surrendered your investment. This 5% is cumulative, so if you don’t use it in a particular year, it can be ‘carried over’ into future years.

Gift your investment tax-efficiently

For those subject to UK Inheritance Tax (IHT), we offer a range of trusts which can help mitigate any potential liability. There is no UK income or capital gains tax charge on the assignor, and all future UK income tax charged at the new owner’s tax rate (if any). Therefore the overall UK tax payable can be reduced if the policy is assigned as a gift to a non-taxpayer, for example a child or grandchild of the assignor who is a university student or even to a non-working spouse/partner. Placing a bond into trust may also be beneficial for generation planning, to avoid probate issues and to protect your assets.

Hassle-free tax returns

Our UK compliant investment solutions are classed as ‘non-income producing assets’ by HM Revenue & Customs. This means there is normally no requirement to include details on self-assessment tax returns unless you decide to cash in more than 5% of your initial investment in any one tax year, or if you surrender your policy.

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