If you are a non-UK resident investor, offshore bonds could be an important role in your financial planning.
With offshore bonds, there is ‘gross roll up’. This means investments within the bond grow virtually free of income tax and capital gains tax (CGT) although there may be tax to pay when the funds are taken.
Another benefit is the ability to manage the timing of when money is withdrawn, as in most countries; the gains are not taxed until release.
Linked to this is the advantage of being able to hold a variety of investments within one product, and to buy and sell assets without creating any immediate tax liability.
It’s easy to move between assets, since all deals are co-ordinated by the life office rather than different fund managers. If you’re not totally confident to manage your own portfolio, or you just don’t have the time, you can appoint third party specialists to guide you and manage your portfolio.
With all investments being held in one clearly identifiable product, you have ability to place the offshore bond into a trust. Assuming trusts are recognised in your country of residence, this could be useful as part of a generation planning exercise.
There are many benefits of offshore bonds over the above the usual tax angles and they could appeal to you if you are looking to invest a lump sum for the medium to long term.
Offshore bonds for UK residents
If you are a UK resident investor, gains on offshore bonds are subject to income tax. However you may be able to avoid this tax if you spend one complete tax year outside of the UK (assuming it is for a settled purpose i.e. employment). Many other assets are subject to CGT and would require a five year period out of the UK to avoid taxation.