What are Offshore Investment Bonds?
Offshore investment bonds are a type of investment that allows a number of different types of assets to be held within the bond such as deposits, cash and investment funds. All the investments that are held in the offshore investment bond are subject to the tax rules of the country where the bond is held, offshore bonds are usually opened in countries that are considered tax safe havens that are considered tax efficient. Any investments that are held inside an offshore investment bond are free to grow almost tax free.
The benefits of investing with limited taxation are of obvious appeal to many investors especially investors who are currently taxed at the highest rate in the UK. Any investment in an offshore bond can benefit from a roll up of interest whereas an investment onshore will have income tax regularly deducted from the total amount.
Things to consider before using offshore investment bonds
Any investment that his held in an offshore bond will be subject to costs, these costs will usually be offset against the gains from investment so you need to be sure that you are able to commit to the investment bond long enough to make sure the roll up of interest offsets any of the additional costs. Simply put you need to make sure that the bond is going to make enough gain to cover costs and still give you a healthy return on investment.
When any money is removed from the offshore investment bond and brought back to the UK then UK income tax at the individual’s highest rate of tax is applicable on any gains. Savvy investors can time the withdrawals from the investment bond at times when they may be subject to a lower tax rate or can transfer ownership of the funds to someone else like a spouse who may be subject to a lower tax rate.
One of the key benefits of investing in this type of bond is the ability to shield funds from the UK tax rate especially in countries with a more competitive rate of tax. Offshore bonds are extremely flexible and the number of different types of investments that can be held is quite broad. Whilst any investments are held inside the offshore bond they are not subjected to any tax as long as they are offshore, investors often take advantage of this and switch between a variety of different types of asset and funds within the bond without any liability of tax.
Should you invest in offshore investment bonds?
Offshore investment bonds will be most appealing to taxpayers that are now subject to tax at the higher rate of 50%. As a rule of thumb any investors should try to take advantage of tax allowances that are available before contemplating investing offshore. Everyone is subject to a CGT or capital gains tax allowance; this is an amount of gain that can be earned before any tax is applied. The CGT rates do not apply for investment bonds as they are governed by income tax amounts so capital gains tax amounts are not allowed to be used. Investing in assets or funds that generate gains that are chargeable against the more favourable CGT allowance is considered a better option over offshore investment bonds.
Just like any other type of investment if you are in any doubt as to whether or not it is the right kind of investment for you then you should seek out independent financial advice.
Offshore Investment Pros and Cons
Offshore investments work by allowing investors to capitalize on financial advantages that are offered outside of their own country. Simply put investors from one country make a corporation in another country, this corporation acts like a shield to the investors accounts protecting them from the higher rates of tax that …
Lump Sum Investments
A lump sum investment is a type of investment opportunity that involves the investment of a lump sum of money at the same time in order to ensure that your invested money is working hard for you. One of the most popular types of lump sum investment involves the use …
Investing in Junk Bonds
This is one of the riskiest investments out there. Your risk is much higher than equities, although the returns can be spectacular. Junk bonds are the lower credit quality firms belonging to the real possibility of imminent bankruptcy. Do not confuse a junk bond with a high yield bond. The …
The debt of emerging countries has a fairly high risk, similar or even higher than equities. In some countries, legal certainty is very low or nonexistent, so that should be avoided by prudent investors no matter how high the interest they offer, as there is a real risk that do …