IIp25-26_Hartford.qxd 12/1/09 15:47 Page 4
26 | Offshore finance
The figures
Term Onshore bond
The table on the right shows an example of
Int
International bond
how an international bond compares with an
offshore bond over 5, 10, 15, 20 and 25 years.
5 Years £133,507 £132,204
For simplicity, charges have been disregarded
and a growth rate of 7% gross per annum has
10 years £178,242 £177,372
been assumed. 15 years £237,966 £240,720
In order to make this a fair comparison, we
20 years £317,702 £329,571
have assumed that a 20% tax charge is applied
to the holder of the international bond on
25 years £424,154 £454,194
encashment and that the tax in the onshore
bond is incurred at 15% annually. However, as
you can see from the table, when investing
over 15, 20 and 25 years an international bond In these instances an international bond for four of those years, they are only liable for
can offer a distinct advantage. The initial may prove attractive as not only will the asset UK tax on one third of the chargeable event
investment is assumed to be £100,000. grow virtually free of tax, but the bond can gain.
also be written on a ‘multi-lives assured’ basis. Excluded Property Trust for a non UK
Why select an international This means the bond won’t be forcibly domiciliary. A person will be deemed as UK
bond? encashed, and a potential tax liability generat- domiciled if they have been resident in the UK
Gifting to non tax payers. An international ed, until the death of the last life assured— for 17 out of the last 20 tax years. By placing
bond may be an attractive proposition for giving them greater control when a tax event an international bond into an Excluded
married couples and civil partners, as well as takes place. Property Trust, prior to being deemed domi-
parents and grandparents, looking for a tax Retirement planning. As an international ciled, the investment will remain as ‘excluded
efficient method of supporting future expendi- bond has an almost identical tax position (in property’.
ture, for example educational costs. the fund) to a pension, it could be an attrac-
The investment will grow virtually tax free, tive addition to a client’s retirement plan. Broadening the message
and then, when required, the bond can be As well as virtually tax free growth, the 20% of IFA’s, researched as part of Defaqto’s
assigned to a non tax payer, such as an adult investor also retains full access to the capital report, said that they didn’t know enough
child in full time education. The new owner value. What’s more, should an investor subse- about international bonds to recommend
can then encash the bond and will be subject quently decide to encash their international them . Certainly there’s a responsibility for
to tax based on their circumstances, thus bond and reinvest into a UK pension plan, any advisers to be familiar with offshore bonds,
potentially minimising taxation. tax liability may be offset by the availability of but providers themselves play their part in this.
This may also be effective when a non or tax relief on the pension investment. It should One way they can do this is to demonstrate
basic rate tax payer realises a gain that pushes be noted that the earnings for that tax year that the benefits of offshore investing are not
their overall income into the higher tax rate would need to be at least the amount of the limited to just a relative handful of wealthy
bracket. In this scenario top slicing relief can investment in order to be eligible for full tax investors.
be applied. relief. As we’ve already mentioned, international
However, unlike an onshore bond, the bond Those leaving or coming back to the UK. An bonds are ideal for tax control and estate plan-
owner can utilise all completed years since pol- international bond can be an attractive invest- ning. However the introduction of income
icy inception, regardless of previous chargeable ment, due to gross roll-up, for investors who guarantees, which can give people added peace
gains or ownership changes, to calculate the would not otherwise be subject to UK tax. of mind, could help to broaden the product’s
tax liability. Potentially this can have a signifi- This applies to those that are going to leave or appeal to a wider mix of IFAs and consumers
cant impact on tax savings and possibly even have already left the UK. alike.
remove a tax liability at the higher rate. For those intending to leave the UK in the The Hartford has recently taken this step
Inheritance Tax planning. An international future, it is important to consider the length and launched its own international investment
bond written in trust permits the settlor to of time required to be a non UK resident. An bond - Hartford Diamond - which comes with
retain control of the investment during their investor cannot be certain of being classed as a the optional Hartford SafetyNet and SafetyNet
lifetime and leave a tax efficient legacy upon non UK resident until they have been abroad for life, a 20 year guarantee and a lifetime
death. for at least four years. guarantee respectively. Not only do investors
Using an Inheritance Tax (IHT) efficient For those considering returning to the UK gain the reassurance that their income is guar-
trust, the bond won’t be included in the they will have the option to encash their inter- anteed – whatever market conditions – but
investor’s estate for IHT purposes, as long as national bond which has been growing virtu- they can also lock-in a percentage of the
they live for at least seven years after placing ally tax free, without any tax to pay on the investment growth, which benefits from the
the asset in trust. chargeable event gains, subject to any local gross roll up, to increase their guaranteed
By investing in an international bond and taxation. They could then invest the lump sum income over time.
putting it in trust for children or grandchil- they have accumulated into a new bond upon In its ‘Calmer Waters’ Offshore Bond Report
dren, the investor can be a trustee. This means returning to the UK, for the purposes of 5% 2008, Defaqto said that it believes that ‘the
the investor will have control over the asset for tax deferred withdrawals. time is right for this kind of product’. This
as long as they live. Alternatively, they could retain their origi- type of innovation will go some way to over-
Generational planning. Often, an individual nal international bond and upon encashment coming the remaining ambiguity surrounding
will be keen to retain assets within the family. the investor can use Time Apportionment offshore investing. However advisers also play
This may be for wedding expenditure, educa- Relief, and thus not pay tax for the proportion an important role in helping their clients to
tion fees, a first property, or even simply a tax of time they were outside the UK. For exam- understand the benefits to them, before they
efficient method of passing family wealth ple, having held the bond for a total for six can in turn benefit from this valuable business
down the generations. years, and if the investor was non-UK resident opportunity themselves.
January 2009 Investment International
www.investmentinternational.com
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36