I have put together a high-level summary of some of the key benefits of an offshore bond for returning to the UK as an expatriate.
TIME APPORTIONMENT RELIEF
- Any UK income tax on any gain will be reduced proportionately for time spent as a non-UK resident.
- Relief will also apply to any additional investments made into the bond, even if made when classed as resident in the UK again.
- No UK income or capital gains tax charge on assignor at time of assignment.
- All future UK income tax charged at the new owners tax rate (if any).
- Therefore, the overall UK tax payable can be reduced if the policy is assigned as a gift to a non-taxpayer, for example a non-working spouse/ partner or a child/grandchild of the assignor.
- Easy to assign into a trust
- Possible to reduce or eliminate UK inheritance tax liabilities.
- Generation planning and asset protection advantages.
- Can remove requirements of probate.
GROSS ROLL UP
- Generally, the funds in which a policyholder invests are not subject to taxes in the insurers jurisdiction. For example, insurers in the Isle of Man do not currently pay tax on the funds held for their policyholders.
- However, investment income building up in any fund/ asset may be subject to a tax deduction in the country where the income was produced.
5% TAX DEFERRED WITHDRAWALS YEARLY
- Yearly withdrawals of 5% of the initial premium (and any additional premiums from the year in which they are added) can be taken without an immediate UK tax charge.
- 5% up to a maximum of 100%, is cumulative if not used.
- Gain is reduced by a fraction which represents the number of years the policyholder was UK tax resident in comparison to the number of years the policyholder has held the policy.
- This reduced gain is added to taxable income in the year of surrender, which could mean a policyholder will not fall into the higher rate (40%) and additional rate (45%) rates of UK income tax on very large taxable gains.