Offshore Investment Bonds (when, why, for whom)

TH1878

Corncrake2 wrote: »

Now y'all given me another headache, should I surrender this year or next !

Is the plan segmented? Can you not surrender some of the segments in this year and some in the next?

I thort of another historical reason for these o-s.bonds, back then p.allowances could be give to the unearning spouse and a man could give all the married man's allowance to his wife's earnings.
So the allowances for those early years were not wasted.

That does not help anyone looking in here for advice on starting one up.
Advice is > "only if your are a high rate and envisage lower in the future" ? is that right ?
And I certainly should not re-invest in them cos my income is going to rise !

Not in all cases but it's unlikely to be a wise decision if you remain UK based and your income is going to rise by the time you want to encash it.

Corncrake2

TH1878 wrote: »

Is the plan segmented? Can you not surrender some of the segments in this year and some in the next?

Well done, thanks for the reminder - Aegis mentioned it earlier and I meant then to find out.
Yes, just phoned them back, again!, and I can indeed
Aegis & TH :beer::beer:

:j We are not talking big tax hits but every little counts This will be something new to learn, watch out for more questions Now where did I put my calculator >> >

Corncrake2

TH1878 wrote: »

Is the plan segmented?

Previously I had a valuation from them for the whole surrender so,
how will this segmentation work ? Will all the segments have equal value so that I take X% of them to construct the proportion of Gain that I wish to achieve ?
( with a margin of error because we will not know the actual value till after the trading date I suppose. )
Or might some segments be composed differently ?
EDIT Ignore this, I've found refs. and examples via Google that show that all parts are equal

Argh, I should have the asked the provider if there was a minimum number I needed to leave in

Edit some more - Ohhh I've been Googling, this is complicated, I think astro-physics is easier !

TH1878

Corncrake2 wrote: »

Previously I had a valuation from them for the whole surrender so,
how will this segmentation work ? Will all the segments have equal value so that I take X% of them to construct the proportion of Gain that I wish to achieve ?
( with a margin of error because we will not know the actual value till after the trading date I suppose. )
Or might some segments be composed differently ?
EDIT Ignore this, I've found refs. and examples via Google that show that all parts are equal

Argh, I should have the asked the provider if there was a minimum number I needed to leave in

Edit some more - Ohhh I've been Googling, this is complicated, I think astro-physics is easier !

The segments should have equal value in most cases. However, I came across one case recently where 999 segments were equal and the 1000th one wasn't so worth checking.

You just need to proportion the calculation down to segment level. For example: £100k offshore bond with previous withdrawals of £50k and no previous excesses (withdrawals above the cumulative 5% limit) - the surrender value is now £200k and the bond is split into 100 segments.

At bond level, the chargeable gain is:

(Surrender Value + Previous Withdrawals) - (Premium + Previous Excesses)

(£200,000 + £50,000) - (£100,000 + 0)

£250,000 - £100,000 = £150,000 chargeable gain

Each segment has a chargeable gain of 100th of the total gain (in this example). If we do the same at segment level (divide everything by 100:

(£2,000 + £500) - (£1000 + £0)
£2,500 - £1,000 = £1,500 chargeable gain

So if you wanted to limit the chargeable gain to £40,000, for example, you would only surrender the required number of segments:

£40,000 / £1,500 (gain) = 26.67 segments

= 26 or 27 segments.

Remember, top slicing relief is also available on the gain and one advantage of an offshore bond is that the top slicing period goes back to the start of the bond and not the last excess (which onshore bonds do).

Corncrake2

An excellent example, thank you, very clear I can follow that !

So for my poor little remaining brain cell is this ok :
in the case of no previous withdrawals ( and therefore no excesses either)
the chargeable gain is equal to the surrender value minus the premium.
G = S - P
or, with little letters for segment level :-

g = s - p

Then in the case of someone with some remaining personal allowance unused ( R ), some ( N ) segments can be surrendered and we can write

R = N.g = N. ( s - p)

re-arranging, N = R / (s-p)

or, N = R / (E/M - p )
where M is the number of segments in the bond
and E is the Estimated Surrender Value of the whole bond.

How does that look, have I stumbled into any elephant traps ?

TH1878

All those letters are giving me brain freeze at this time of the morning!

In essence, in your example....

Gain = Surrender value - Premium

Gain per segment = (Surrender Value - Premium)/No. Segments.

Assuming the whole bond gain is £100k and you want to surrender 50 of 100 segments.... The gain on these is £50,000 and the bond has been in force for 10 full years.

As a non taxpayer (with zero income) the first £10k is ignored (personal allowance). The next £2,880 is taxed at 10% (£288) and the remaining £37,120 is the portion of the gain that is taxable at higher or basic rate tax.

Top slicing is available so you divide this remaining gain by the number of years the bond has been in force (10):

£37,120 / 10 = £3,712

As long as this top slice doesn't send you into the higher rate tax band, you will just pay 20% tax on this section. So total tax =

£2,880*10% = £288
£37,120 * 20% = £7,424

TOTAL = £7,712

From April, the savings rate is going to 0% for £5,000 so;

The first £10,600 is disregarded (personal allowance)
The next £5,000 is taxed at 0% (savings rate)
The remainder is taxed at 20,40 or 45% but top slicing relief is available.

In practice, you will be able to disregard the first £15,600 of the gain after April.

Hope that helps!

jem16

TH1878 wrote: »

The first £10,500 is disregarded (personal allowance)

The personal allowance for 2015/16 will be £10,600.

TH1878

jem16 wrote: »

The personal allowance for 2015/16 will be £10,600.

I missed that announcement - right you are! Cheers jem.

Corncrake2

TH1878 wrote: »

All those letters are giving me brain freeze at this time of the morning!

I'm the reverse the little letters are ok, it's the big worms that confuse me all day, like tax deferred and top-slice and things ( I did ok with math phys and chem, twas eng.lit and french wot defeated me )

Thanks TH and y'all,
this idea of segments looks like I can bring the gain back efficiently in 2 dollops.
Wont know if I have my sums right till I submit it to the tax man. I managed to 'phone them mid-morning and he said I should 'phone back if / when a chargeable event is issued and that _I_ should initiate that - not wait for them cos I must not assume that they receive their copy.
He was very keen that I should 'phone for advice first before generating any perhaps unnecessary paperwork / S.A, thus minimise work load for both parties
Very nice helpful chat.
The proceedure it seems is to phone, security Q.s will be asked, then advice will be given and it will be recorded so that if the advice is do nothing I can happily sit back and not fill in any forms.
Logical really.

Thanks everyone for all the help, much appreciated.