With an offshore bond, gains are charged at basic rate in the hands of the personal representatives. When the proceeds are later distributed to the beneficiary, the chargeable event gain will be taxable on the beneficiary who will be treated as having paid tax on the gain at 20% basic rate.
What is a offshore bond?
An Offshore Bond is a single premium insurance policy written outside the UK, into which the investor pays a single premium that can then be invested in a range of assets.
What is a disadvantage of an offshore investment bond?
As withdrawals from a bond are assessable to income tax, it is not possible to use personal or trustee CGT allowances to reduce gains. Base cost of the investment is not re-valued on death for income tax purposes. On death of the last of the lives assured, income tax and IHT may be due.
How is the gain from an offshore bond calculated?
The gain is sliced by the number of complete policy years the bond has been in force minus the number of years of non UK residency. The slice is then added to the policyholder’s income to determine the split between basic and higher rate tax (or higher rate (40%) and additional rate (45%) tax).
How much can I withdraw from an offshore bond?
With an offshore bond, an amount equal to 5% of total premiums paid may be withdrawn each policy year for 20 years without an immediate liability to income tax arising. If a withdrawal is taken which exceeds this 5% allowance, then the amount by which the 5% allowance is exceeded is called…
What kind of tax do you pay on Offshore bonds?
When an offshore policy is surrendered, an individual can be charged income tax at nil if the personal allowance is available; starting rate 0%; basic rate 20%, higher rate 40% and additional rate 45%. If you need to make higher rate and additional rate calculations, see our article Top slicing relief.
Are there chargeable events in an offshore bond?
The chargeable events relating to an offshore bond are as follows: Offshore bonds do not receive a tax credit as do their onshore counterparts. This is because the funds of an offshore insurance company will not suffer any liability to tax on income or gains arising within the fund.
