Offshore investment bonds explained

There are a number of tax efficient methods of saving and investing, which may help build your capital over time. One option are offshore investment bonds, which are issued by companies outside of the UK. They can be very effective if you’ve used up your pension and tax allowance, and still have funds available to invest tax efficiently. Bonds can also be helpful when it comes to estate planning, in some circumstances to sensibly guard against unnecessary Inheritance Tax. And they can be a useful tool if you plan to gift money to family or friends in the future.

What are offshore investment bonds?

Offshore investment bonds (also known as international bonds) work as a tax efficient wrapper, giving you the ability to save and invest your money without paying tax on any investment growth. They can be used to invest a lump sum or more regular amounts and are generally worth considering if you’re looking for a medium to long term investment, ideally when you’re happy to tuck your money away for five years or more. These types of bonds are issued in secure jurisdictions with high levels of investor protection, such as the Isle of Man. They give access to broad range of assets, and a selection of investments, and it’s also possible to switch the holdings as and when your investment preferences change. In the future the bonds can be used to create a regular income or help fund your retirement.

Are offshore investment bonds taxable?

Offshore investment bonds aren’t taxable whilst you invest or as the fund grows, making them a good choice while you have the ability to save your capital. Tax may apply as and when you come to withdraw funds, but it depends on your personal tax status at the time and whether you bring the funds into the UK or not. It’s also possible to withdraw up to 5% from the bonds without an immediate UK tax charge tax charge, for up to 20 years.

Why consider an offshore bond

There are a number of reasons why offshore bonds can be a useful option when it comes to your investment strategy:

• Tax efficiency – bonds are a tax efficient way to save and invest and you can leave your money to grow without being eroded by tax
• Ability to withdraw capital – your funds can be drawn down, up to 5% tax efficiently each year for 20 years, to provide an income for later in life
• Gifts to family members – bonds are classed as an ‘assignable asset’ which means they can be transferred as a gift to someone else over the age of 18 without incurring Capital Gains Tax, or can also be gifted to a trust, again to help pass on estates in a tax efficient way
• Flexibility – it’s possible to switch the provider (or custodian) of your bond to another giving you much more investment flexibility and the option to create bespoke portfolios, although this does depend on your personal circumstances and preferences
• Offshore bonds can be assigned into trusts as part of your plan to reduce your inheritance tax bill.

Offshore investment bond management from The Fry Group

With our network of global offices, and strong relationships with a range of investment providers, The Fry Group can offer financial advice on all aspects of your personal situation including offshore investment bonds.