What is an Offshore Bond?

08 June 2010 - Which Way To Pay

    



What is an Offshore Bond?

 

Aimed at higher level earners, offshore bonds are becoming increasingly popular according to financial advisers.  Used as a wrapper around investments, the tax benefits of offshore bonds are especially popular with people whose tax relief is being limited.

 

 

Here are some basic facts about offshore bonds and how they work…

 

-          Offshore bonds are so-called ‘insurance wrappers’ which allow you to defer tax on the growth of the investments in your investment portfolio.  Growth on capital in an offshore bond is tax-free – while in an onshore bond growth is subject to 20% tax.

 

-          Offshore bonds allow you to withdraw up to 5% of your capital while deferring higher-rate tax.

 

-          Higher earners (those who earn over £130,000 a year) are especially interested in offshore bonds as they are to lose their higher-rate tax relief on their pension contributions under tax changes to be implemented.

 

-          Charges on offshore bonds are high – up to 1% upfront plus £400 to 0.25% each year.  These fees depend on the amount that you invest.

 

-          Many financial advisers now recommend offshore bonds to higher earners who use their ISA and capital gains allowance but no longer get the benefits from high-rate tax benefits.

 

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