Encashing an Offshore Investment Bond

Taxtrapped

Hi, I have an Offshore Investment Bond with St. James Place International. I'm a UK resident and wish to encash the Bond which will incur an income tax charge - mostly at the top rate in my circumstances. I plan to retire abroad in the next few months. Is it possible to avoid this tax charge by waiting until I become a non-UK Resident to encash the Bond? If so, how many years would I need to remain non-resident in the UK to stop the Income tax being chargeable if I decided I wanted to return to live in the UK.
Is there any other legitimate way of mitigating the potential income tax liability on encashment.
Thanks

macca1974

If you fully surrender an offshore bond, then the "chargeable event" will take place on the day that you surrender the bond and if you are a UK resident during that tax year (which you presumably would be this year), then any gains would be applied to your taxable income this year and taxed accordingly.

If you leave the UK in the next few months and then are a proper non-resident for the 2015/2016 tax year then there shouldn't be any UK tax to pay. Although, you'd need to check that HMRC accepted that you were non-UK resident as they might not depending on a whole variety of factors.

Remember though that it may well be that the bond would be taxable in the country that you move to and this might be a higher / lower level of tax than if you surrendered in the UK. You'd need specialist advice in your new country of residence to check this.

Regarding any tax charge in the UK, if you think that you are going to pay tax "mostly" at the higher rate, presumably that is because when you have top-sliced the gain, a proportion of it uses up your basic rate band and the rest falls into the higher rate. It might be worthwhile considering surrendering full policies of the bond up to the level where you pay HRT this tax year so that you would only bay BRT. But again it would be a good idea to take advice on this.

As a final point, if you've got an offshore bond with SJP, then you will have paid some serious charges on it and they would have been paid handsomely. I would ask them the question to be honest as its part of their job that you've already paid for.

dunstonh

mostly at the top rate in my circumstances.

When you say top rate do you mean the 45% tax band? Are you also aware that this would also mean you lose your personal allowance.

Is it possible to avoid this tax charge by waiting until I become a non-UK Resident to encash the Bond?

Potentially, yes. Reducing it more likely but increasing it is also possible depending on the tax rules of the country you will be resident in.

Is there any other legitimate way of mitigating the potential income tax liability on encashment.

Stagger the surrender over multiple years is a common method. Especially if you dont need it all in one go. Maybe not taking your pension income (if money purchase) and using the bond to feed your income. There are other ways too.