Investments in offshore bonds are usually designed for high net worth clients, generally with a significant amount in liquid assets, but people are now taking advantage of the benefits the offshore sector can provide.
They are also a long term savings solution, says Rachael Griffin, head of technical marketing at Skandia, and although offshore bonds do offer a 5 per cent tax deferred withdrawal, they generally are not the best product if a client is looking for immediate income generation, or if instant access will be needed.
While there is a general perception that offshore investments are only for those persons who are very wealthy, more and more people are taking advantage of the benefits the offshore sector can provide, says Simon Willoughby, head of proposition at Axa Wealth International.
“These benefits are not just restricted to tax and can include greater freedom of choice and more options for investors; it’s about investor choice and asset diversity.”
For example, UK life insurance products are generally linked to a range of pre-determined funds offered by a given life company, while their offshore equivalent usually allows for a much greater range of investments across multi-asset classes.
Offshore bond wrappers can also be attractive to people looking to move or retire abroad, those who have already used up their pension allowance, those looking to gift money to family or friends or even small business owners.
Furthermore, those wanting to protect some of their estate from inheritance tax can greatly benefit, suggests Darius McDermott, managing director of Chelsea Financial Services.
“If the bond is put in a trust it won’t be included in the estate if you live for more than seven years, but importantly, any growth in the investment is immediately outside of the estate.”
The offshore sector is also a thriving hub for fund, fiduciary and corporate services taking advantage of the lower tax rates on offer, which can often be beneficial for people who are perhaps looking to move overseas themselves, because the investments can be structured through products so that they are not held in the onshore jurisdiction.
For example, explains Mr Willoughby, UK non-domicile individuals in the UK can benefit from investing in certain offshore trusts which can mitigate their exposure to UK inheritance tax.
“Persons moving overseas may also benefit from moving their pension assets to an overseas pension provider to avoid having assets remaining in their onshore territory.”
Qualifying recognised overseas pension schemes (Qrops) can be useful as they can allow this transfer in a tax efficient manner.
