Financial Adviser Hertfordshire

Onshore Investing

Onshore and Offshore bonds are issued by a range of investment and insurance companies and are often referred to as single premium bonds, investment bonds or unit-linked bonds.

The investor will normally make a lump sum payment into the bond, and the money is then invested across a range of underlying investment funds to both spread the risk and maximise returns. The average minimum investment amount is larger for offshore bonds than for onshore bonds (typically £20,000 for offshore as opposed to £10,000 for onshore bonds).

Both offshore and onshore bonds bring tax benefits, as they are governed by the same rules that are used to control life insurance. Onshore bonds are subject to corporation tax at 20%, but there is no basic rate income tax or capital gains tax liability on the individual while the funds remain invested.

Bondholders can withdraw up to 5% of the value from the bonds without incurring an immediate tax liability, deferring the tax until the bond is cashed—by which time the bondholder could perhaps fall into a lower rate tax band (eg in retirement), whereby there is no personal tax liability on the investor.

Investment Bonds are extremely popular and widely used.  One reason is that there are several was in which Investment Bonds may ligitimately  and legally used to avoid tax.  To take full advantage of these opporunties you should speak to an independent financial adviser.  Although widely used by basic rate tax payers, Investment Bonds can be even more attractive to higher rate income tax payers and trustees.

Potential Investment Vehicle for those planning to move away from the UK

Offshore bonds are also useful for investors planning to move overseas to a country with lower taxes—the tax payable at encashment could then be paid under the new country’s tax regime.

European Tax Rules:

Tax authorities across Europe have become ever more vigilant and many offshore investments no longer bring tax benefits. However, offshore bonds are exempt from the European Union’s tax savings directive which came into force in July 2005, because the assets in the bond are held by the life company/investment house running it, rather than by the individual investor.