Offshore bonds

Offshore Bonds

& Locally Compliant

Tax Wrappers

The Pros & Cons Of Offshore Bonds

Offshore bonds have been the go-to option for many expat advisors in recent years. Although they can be a useful tax-efficient investment vehicle when used in the correct circumstances, the restrictive nature of charging structures can offset the benefits they offer.

A detailed understanding of how offshore bonds work is key, and although investment platforms tend to be advanced technologically, flexible and easy to use, there are still locations where the tax advantages of using offshore bonds should not be ignored.

British expats in particular can benefit from offshore bonds if returning to the UK. Before arriving, you should 'endorse' your bond and you'll be entitled to an annual 5% tax-deferred income, in addition to a lump sum equal to 5% for every year the bond has been open. The 5% allowances are taken from the invested capital until it is withdrawn, amounting to a total of 20 years (5% x 20 years = 100%). The remaining funds will be then be taxed as income.

Paying For Your Bond

On of the most important criteria to observe is how you pay for the bond. Fixed charges over a set period, usually 5, 8 or 10 years may apply and it's these structures that limit flexibility, especially in the first few years as closure can incur substantial exit fees.

Furthermore, charges are measured against the initial invested capital and not the value, so if poor fund performance or withdrawals takes the balance below what you invested, you'll be paying charges on funds that are not there. So, if you invest £100,000 paying 1% pa in fees (£1,000), by withdrawing £50,000 and halving the balance, you still incur a charge of £1,000 pa, effectively doubling the fees as a percentage. 

Additional quarterly administration fees of over £100 also apply which can amount to a significant increase in charges for smaller amounts. Therefore, it is vital to understand if the fiscal benefits outweigh the investment costs.

How Bonds Can Work For You

Bonds can be set up in a pro-investor way. Locally compliant bonds can significantly reduce the tax you pay. In locations such as Spain, Portugal or France, bonds also complete the tax reporting for you, but be sure to pay for your bond without fixed charging structures and on a fee-only basis so you can access funds without penalty.

Get in touch today and we'll explain the benefits of using offshore bonds and if they are the correct investment for you, and make an educated decision with complete peace of mind.

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Robin Matthews trading as Inveq is a member of OpesFidelio and is authorised to give financial advice subject to contract in parts of the EEA (Excluding the UK). OpesFidelio is a trademarked network of the Aisa Group which includes Aisa Financial Planning Ltd and Aisa International s.r.o. Aisa Financial Planning is authorised and regulated in the UK as an independent financial adviser for UK retail clients by the Financial Conduct Authority and has permissions throughout the EEA under both directives IDD and MiFID.  View FCA authorisation here.

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