Offshore Investment Bonds (when, why, for whom)

Corncrake2
Corncrake2 Posts: 92 Forumite
edited 24 February 2015 at 10:08PM in Savings & investments
I have been told by pm that it is a surprise that such a bond was advised (all those years ago) to me a non tax payer.
The sugestion is that it is only of benefit to higher rate tax payers.
An on-shore bond has some (company / corporatuion / other?) tax taken (/ used /offset) which cannot be reclaimed by a UK resident.
I am unclear why only a higher rate tax payer ? Is it not also lost to anyone who cannot reclaim it ?
This wont help me, but may be of interest to our chum Perdu or others.
(or I may come to consider these things again in the future :) ) (being as I soon will have more dosh to invest and will have more income as well )

I thort I'd better start a new thread on this subject cos I can feel a thousand knives aimed at the back of my head for curtailing the other one :rotfl:
No doubt some bright spark will show there is already a thread > over there >
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Comments

  • Aegis
    Aegis Posts: 5,695 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    Corncrake2 wrote: »
    I have been told by pm that it is a surprise that such a bond was advised (all those years ago) to me a non tax payer.
    The sugestion is that it is only of benefit to higher rate tax payers.
    An on-shore bond has some (company / corporatuion / other?) tax taken (/ used /offset) which cannot be reclaimed by a UK resident.
    I am unclear why only a higher rate tax payer ? Is it not also lost to anyone who cannot reclaim it ?
    This wont help me, but may be of interest to our chum Perdu or others.
    (or I may come to consider these things again in the future :) ) (being as I soon will have more dosh to invest and will have more income as well )

    I thort I'd better start a new thread on this subject cos I can feel a thousand knives aimed at the back of my head for curtailing the other one :rotfl:
    No doubt some bright spark will show there is already a thread > over there >
    Offshore bonds are almost designed to allow you to defer tax on gains to a future year. As such, if you're a non-taxpayer at the point of purchase, there's not much to be gained at first glance, especially since all gains are taxed as income at the point of surrender, you can actually end up sacrificing personal allowances and capital gains tax exemptions over several years.

    There are still some circumstances in which offshore bonds might be appropriate, but that's usually to do with trusts or some other protection of wealth.
    I am a Chartered Financial Planner
    Anything I say on the forum is for discussion purposes only and should not be construed as personal financial advice. It is vitally important to do your own research before acting on information gathered from any users on this forum.
  • Corncrake2
    Corncrake2 Posts: 92 Forumite
    edited 25 February 2015 at 1:59AM
    xylophone wrote: »
    Thanks, that looks good stuff,
    only a quick look so far,
    whizzed to the bottom : dis. for UK residents :
    "
    chargeable to income tax at their highest marginal rate of income tax in the tax year in which the gain is realised. Under the current income tax rules, this could be 0%, 10%, 20%, 40% or 45%."

    Which for a non-tax payer would be 0% till the p.allowance was exceeded. ??
  • Aegis wrote: »
    especially since all gains are taxed as income at the point of surrender, you can actually end up sacrificing personal allowances and capital gains tax exemptions over several years.
    Brill ! Yes that was my understanding so far.
    But what about before surrender >
    You take nothing for several years,
    then roll up the 5%worth, and take extra above those years. That (edit extra above the 5%stuff ) becomes liable and reduces the p.allowance.
    But if the p.allowance is all, or nearly all, still available then ~£10,000 (or is it 10500?) can be taken each year from then on ?
  • colsten
    colsten Posts: 17,597 Forumite
    10,000 Posts Seventh Anniversary Photogenic Name Dropper
    Someone help me please.

    If HSBC help people to avoid tax it is tax avoidance and must not be allowed.

    If someone asks on MSE how to avoid tax it's ok to help your mates.

    Same measure? Two measures? You decide.
  • Corncrake2
    Corncrake2 Posts: 92 Forumite
    edited 24 February 2015 at 11:36PM
    I knew it !
    Oh dear, there has always got to be one !!

    go look up "tax avoidance vs tax evasion"

    Dont listen to the news media !
    Is a tax free ISA an avoidance or an evasion. You decide.

    and maybe start a thread on that subject ?
  • Aegis
    Aegis Posts: 5,695 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    Corncrake2 wrote: »
    Brill ! Yes that was my understanding so far.
    But what about before surrender >
    You take nothing for several years,
    then roll up the 5%worth, and take extra above those years. That (edit extra above the 5%stuff ) becomes liable and reduces the p.allowance.
    But if the p.allowance is all, or nearly all, still available then ~£10,000 (or is it 10500?) can be taken each year from then on ?
    If you take an amount out above the 5% amounts it causes a chargeable event, which will factor back in all the 5% tax-deferred withdrawals. When it comes to providing an income, you're better to either take only up to the 5% level or to surrender whole segments of the bond and pay tax on the gain. There is also the option to part-surrender across all bond segments, but that can feasibly lead to significant levels of tax being paid even if the gains are modest or non-existent.
    I am a Chartered Financial Planner
    Anything I say on the forum is for discussion purposes only and should not be construed as personal financial advice. It is vitally important to do your own research before acting on information gathered from any users on this forum.
  • Corncrake2
    Corncrake2 Posts: 92 Forumite
    edited 25 February 2015 at 2:44AM
    Thanks again, appreciated.

    >>If you take an amount out above the 5% amounts it causes a chargeable event,

    Exactly

    >>which will factor back in all the 5% tax-deferred withdrawals.

    Factor back in ??
    5% x Yyears (to a max of Y=20y ** ) so no tax liability ?
    So each year you take 1yearsworth of 5% plus any preceeding unused years worth ?
    And in 1 or more years you take extra (and maybe pay tax if it exceeds your p.allowance)
    which will then reduce the size of any tax liable gain on surrender.

    Edit In other words :
    dont we need to first deal with the unclaimable company tax of an onshore account to a UK resident post#1

    then deal with the tax liable gain above 20 x 5%
    and if it should be brought back all in one year (surrender)
    or part taken each year in free p.allowance sized chunks until that which remains in the year of surrender is also less than the remaining p.allowance.

    then consider segmentation ?

    ** Perhaps we are getting xporpoise on that 20y thing ?
    example :
    In year 15 you can only take 15 x 5% without liability and without generating a CEvent
    But you may take more, which is liable for tax, will generate a CE, but tax may(will) not be due if it is within your p.allowance still.

    In year 17 you may take 2 x 5% with no liability and no CE

    In year 18 you may take 1 x 5% with no liability plus some more which will be liable, and cause another CE, but will not be tax due if it also is within your p.allowance.

    Then in year 22 you surrender and the remaining 2 x 5% is not liable but anything above that is a gain and is liable.

    That is only an example, not what I have done nor proposing to do,
    just an example to see if /where wrong assumptions may be made, or areas of pitfalls may lay elephant traps ( to use a S.Fry-ism ) !

    I have been editing and re-editing to try to make what I mean more readable and make more sense till it is 1:40 am , that's the best I can do so I'm off to bed !
    G'night all.
  • Well I have been thinking more about Aegis > "factor back in "
    and reading loads more and getting thoroughly confused with the terminology :(

    When I previously said
    " or part taken each year in free p.allowance sized chunks until that which remains in the year of surrender is also less than the remaining p.allowance. "
    may be untrue ?

    Whilst they (the 'chunks') may have been within the p.a. in the year received and not generating any tax to be paid at that time
    they are all totalled up upon surrender and then all become income from gain in that final year and thus if the total is above the p.a. for that final year then tax will be payable ?
    Sounds odd to me but
    Is that what Aegis means by factored back in ?

    So in other words there is no point to taking some of the gain in intervening years ?

    My head hurts.
    :(
  • jem16
    jem16 Posts: 19,544 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    Corncrake2 wrote: »
    Whilst they (the 'chunks') may have been within the p.a. in the year received and not generating any tax to be paid at that time
    they are all totalled up upon surrender and then all become income from gain in that final year and thus if the total is above the p.a. for that final year then tax will be payable ?
    Sounds odd to me but
    Is that what Aegis means by factored back in ?

    It is, yes. The 5%pa withdrawals are merely tax-deferred withdrawals and not tax-free withdrawals.

    Once you make a full encashment those withdrawals still get counted when working out your overall gain.

    There's a useful calculator here;

    http://www.invidion.co.uk/investment_bond_calculator.php
    So in other words there is no point to taking some of the gain in intervening years ?

    With a UK Bond there is a point as you can take 5%pa without incurring, for example, higher rate tax. If you leave encashment till you are a basic rate taxpayer you then save on tax.

    For an offshore Bond and a non-taxpayer I'm struggling to work out the advantage to be honest.
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