The Benefits Of Offshore Investing

offshore investingThe past couple of years have brought a large number of headlines damning celebrities for their involvement in different types of schemes for offshore investing.

Gary Barlow is the most recent A-lister to fall foul of HMRC’s clampdown on what are classed as ‘tax avoidance’ schemes, taking to twitter last week to apologise to his fans if he had offended anyone with his attempts to dodge the tax man.

Real benefits still exist to investing offshore

These schemes often take advantage of some highly creative accounting techniques and regularly push the boundaries of what some would consider to be morally fair and reasonable. Unfortunately though for many people this, coupled with a high profile protagonist, creates a sense of injustice that detracts from the benefits that exist for legitimate offshore investing that are available to everyone, in particular offshore investment bonds.

The services of a qualified financial adviser are essential in understanding all the potential benefits and pitfalls of these types of investment but here are a few of the key advantages.

Main advantage is gross roll up of funds

The main benefit of investing in an offshore investment bond is the gross roll-up of your investment. This means that any underlying gains are not subject to tax at source. With an onshore bond fund, tax is payable on income and gains by the underlying investment (irrespective of the investors personal tax status) so in comparison an offshore investment has the potential to grow faster than a taxed one.

Historically the charges on offshore bonds were a higher the onshore equivalent which offset a lot of the potential gains made from gross roll up. However the growth of investment platforms in recent years has greatly reduced this disparity allowing investors access to the funds they want in a virtually tax free environment.

If you are a UK resident you can still have an offshore investment bond and benefit from gross roll-up. Any tax on the growth or income is only paid when money comes out of the bond and is based on your marginal rate of income tax in the year that you bring the investment back onshore.

5% tax deferrable allowance available

With the same 5% tax deferrable income allowance that is available on an onshore investment bond this makes it particularly attractive for those intending to move abroad in the future, as well as UK non-tax payers or those that are likely to move from higher or additional rate down to basic rate later on in life.

If you work or plan to work outside the UK it is also possible to claim relief for gains made during that period. Even if you encash your bond after returning to the UK you would be able to use this ‘time apportionment relief’ to reduce the amount of UK tax in proportion to the amount of time you lived abroad.

Useful tool for university planning

Offshore Investment bonds have become particularly popular with parents and grandparents as a tax efficient method of helping with the cost of university fees. Investment bonds are usually set up as a cluster of segments which creates a large amount of flexibility in how you can manage the investment and any tax payable. As each cluster is, in effect, a policy in its own right it is possible to assign one or a number of these segments to a child over 18 when the money is needed. Importantly the tax liability then falls on the beneficiary rather than the donor and as most students are non-tax payers any liability is likely to be minimal.

2016-10-23T17:14:11+00:00 October 10th, 2014|Investments|0 Comments

About the Author:

Paul Milnes
Founder and Director of JPM Asset Management