Offshore Investment Bonds

Technically similar to Onshore Investment Bonds, the Offshore version is generally offered by the ‘International subsidiary’ of insurance companies, based in recognized Offshore venues such as the Isle of Man, Channel Islands or, more recently Dublin.

Despite investor concern about regulatory protection, these Offshore venues have very good investor protection similar or equivalent to that in the UK. It is worth checking in each case, prior to investing, exactly what legal protection exists within each venue and from the investment provider.

The main taxation difference between Offshore and Onshore Investment bonds is that the Offshore version pays no UK tax within the fund, but returns are then subject to tax at the rate relevant to the investor at the time of withdrawal.

Tax profile is a real advantage to investors who are consistent non taxpayers, or who will be non taxpayers in future years. It may be possible to generate returns free of UK taxes. For instance, for the benefit of minors who encash the investment when they have little or no other income.

As for onshore bonds, Local Authorities do not include the value of offshore investment bonds as assets when calculating entitlement to financial support for residential long term care.

Offshore investment bonds are frequently used within trusts for IHT planning as the long term nature of this type of arrangement complements the benefits of ‘gross roll up’ where the return is free of UK taxes whilst invested.