Off Shore Accounts

Cheerfulcat, I sincerley hope I have not put you off posting. I am disappointed that you feel postings have been 'hostile'. I am sure you will agree that nothing I or anybody else has said has been in any way abusive to you personally. All we have done is state the facts about the way offshore accounts are taxed. I appreciate you were 'trying to help', but repeatedly providing incorrect information about the tax treatment of offshore accounts may lead to people making bad decisions if that information is not corrected.


Paul: Your comments about investment bonds are essentially correct. The advantage of an overseas investment bond is that less tax may be payable during the lifetime of the bond, allowing growth to accumulate without deduction of tax. However the tax payable on encashment by the investor at the end will generally be higher, because unlike a UK bond you are not treated as if basic rate tax has alrerady been paid.

A lot will depend on what investments are bought within the bonds. No tax advantage would accrue for example on UK shares, because the offshore bond can't recover the tax credit, and so the offshore bond really needs to put in interest-yielding products to get any advantage.

The other thing to consider (for higher rate taxpayers) is the effect of grossing up. Taking a simple example, suppose over the life of the bond, interest of £100 gross has accrued. A UK bond would have paid £20 in tax, leaving a gain of £80 to the investor. If they are still a higher rate taxpayer when they cash it in, tax is payable on the after-tax figure of £80. So higher rate liability is £32, of which you are treated as having paid £16, so there is a further £16 to pay, leaving £64 after tax. With an offshore bond, the gain would be £100. Tax would be 40% of £100, leaving only £60 after tax. (On he other hand the funds would have rolled up gross within the bond, and so the gain could well have exceeded £100.)

I would strongly recommend anyone thinking of taking out an investment bond to seek advice from an IFA. The charges on these products (both onshore and offshore) can be quite high.

Any newbies around I can hit with my spade today? ;D

Sorry, cheerfulcat, but I don't see any of the above as a personal attack on you, just trying to provide the questioner with accurate info. I suppose it could have been done more diplomatically. But I've been wrong (well, I like to claim I've been "misinformed") before, as we all have. Just need to learn from it and go on.

I hope you stick around.

Just don't do it on the pensions board. That Pal guy is dangerous. ;D

Quietly, I hope. :P

Not anything? ;D