Offshore investment revolves around keeping money in a jurisdiction that is different from your country of residence. One of the main reasons why people opt for offshore investments is because they are looking for ways to reduce taxes that are entailed in most countries.
Don’t be mistaken; this does not relate to money laundering or tax evasion in countries that are poorly regulated. It relates to well-regulated offshore countries whereby legitimate investors seek to benefit from lower tax rates and/or higher rates of return. Therefore, you benefit from a legal means of lowering the costs traditionally associated with investing in your country of residence.
What is an offshore bond?
This is known as an ‘investment wrapper’. Essentially, an offshore bond will facilitate investment in a broad range of investment funds. This encompasses everything from structured products, to bonds, to shares, and more. These are ideal for people who are looking to increase their long-term wealth via methods that are tax efficient.
What are the benefits of an offshore bond?
- You will only suffer income tax on the income received grossly within the bond on future encashment of the offshore bond.
- Offshore bonds are extremely flexible. As mentioned previously; they encompass everything from shares to capital protected funds. Of course, don’t invest blindly, though. You will need to keep up to date with Midas Letter stock news and other reputable websites and publications.
- There are no annual tax returns required from the individual in question, as offshore bonds are deemed to be non-income producing assets.
- Investment parameters are wide-ranging, to say the least.
- The CGT 30 day rule is not in place in relation to the switching in and out of funds and so tax is avoided via this method.
- Funds tend to be safe because most offshore bond providers are an extension of financial service companies.
What are the disadvantages of an offshore bond?
- You cannot use trustee or personal CGT allowance in order to diminish gains. The reason why this is the case is that bond withdrawals are assessable to income tax.
- Sometimes an offshore bond cannot be suitable in the instances whereby ‘income’ interest exists inside a trust. The losses of investment cannot be offset elsewhere.
- Chargeable event gains mean you may suffer income tax of up to 45 per cent on encashment.
- On death, the base cost of the investment is not re-valued for income tax purposes.
Hopefully, you now have a better understanding of the pros and cons associated with offshore bonds. If this is something you are interested in, it is certainly worth looking into the assistance of a professional, especially if you are unsure. After all, there are clearly a lot of benefits associated with offshore bonds. However, the success of this is dependent on the individual and you do not want to fall into the traps of the disadvantages mentioned.
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