Offshore bonds
Discussion
I am currently exploring options to invest in offshore investment bonds and would appreciate guidance.
I have never used an IFA before and have been using execution platforms such as HL and II, given both costs and not requiring views as to what to invest in.
I am looking for recommendations on how to invest in offshore bonds either:
1. Directly without involving an Independent Financial Adviser (IFA) (I havent been able to find a platform), or
2. Through an IFA which offers an execution-only service, where advice is not required (so to keep costs minimal).
If you could point me toward any platforms, or IFAs who facilitate such arrangements, I would be grateful.
I have never used an IFA before and have been using execution platforms such as HL and II, given both costs and not requiring views as to what to invest in.
I am looking for recommendations on how to invest in offshore bonds either:
1. Directly without involving an Independent Financial Adviser (IFA) (I havent been able to find a platform), or
2. Through an IFA which offers an execution-only service, where advice is not required (so to keep costs minimal).
If you could point me toward any platforms, or IFAs who facilitate such arrangements, I would be grateful.
What is the advantage of an Offshore Bond, over any UK bond?
There was a time when you could open a Channel Islands bank account and receive interest gross, but that arrangement ended, although subsequently gross began to be paid in the UK.
Do you remember the tale about Ken Dodd going to an Isle of Man bank or building society and then paying in cash?
Eventually HMRC took a snoop at that, because the gross interest received was not being declared.
HMRC lost the case, I think because they could not prove intent, but after that, Mr. Dodd included many HMRC jokes in his performances. -
JoshSm said:
Jon39 said:
What is the advantage of an Offshore Bond, over any UK bond?
I can see why they want an IFA in the loop.
JoshSm said:
Jon39 said:
What is the advantage of an Offshore Bond, over any UK bond?
From my quick spin through the blurb from the providers it seems a little complex - in the right scenario, managed correctly, long term, they can be useful.
I can see why they want an IFA in the loop.
Interesting.
Simply being offshore, would not necessarily mean the return was higher and I doubt there are extra taxation benefits.
One of my rules is, if I cannot understand an investment or business activity, I won't get involved.
I will admit to an exception though - the banking sector. There are now some parts of that business which are so complex, one wonders if even the board of directors understand. Hopefully, HSBC never becomes a Barings Bank (for those who don't remember, one of their traders went wild and the bosses were completely unaware, until the trader went missing.)
Jon39 said:
Interesting.
Simply being offshore, would not necessarily mean the return was higher and I doubt there are extra taxation benefits.
Offshore banking certainly isn't a route to high returns or much of anything else in itself, especially now they report everything anyway. It provides a bit of a utility function and not much more.
My wife and I both invested in International Investment Bonds some years ago at the same time as other “ new “ Investments - I wasn’t particularly aware of them until my FA suggested them and then looking around I couldn’t find a way of purchasing as a layman.
Within the IIB “ wrapper “ we invested in various Funds that we already knew of.
Relatively expensive charges at start up.
After being held for 5 years we can take annual withdrawals of around 5% of the pot with no tax or charges with any unused percentage being rolled forward.
They also come with life insurance thrown in.
Just gives flexibility as to any future potential income needed as say additional to ISA’s although I’m still content with using my Pension to provide dd funds especially as Rachel changed the rules on IHT.
Within the IIB “ wrapper “ we invested in various Funds that we already knew of.
Relatively expensive charges at start up.
After being held for 5 years we can take annual withdrawals of around 5% of the pot with no tax or charges with any unused percentage being rolled forward.
They also come with life insurance thrown in.
Just gives flexibility as to any future potential income needed as say additional to ISA’s although I’m still content with using my Pension to provide dd funds especially as Rachel changed the rules on IHT.
This is what we have: https://www.canadalife.co.uk/estate-planning/wealt...
AIUI, it's just a wrapper like a SIPP or an ISA - the funds are held under Trust but they're invested by our DFM and appear in the same portal as our SIPPs amd ISAs. As another poster mentioned, it's a load of insurance policies and we have to decide each year whether to take the money as they mature, or reinvest it.
The purpose for us was to set aside some money for our kids but not give it to them yet. Setting up the Trusts starts the 7yr gift countdown straightaway.
You could set this up yourself directly, but I don't know (as I've never looked) how you'd do the investment of the money, especially outsdie of what Canada Life offer. We have an IFA and he directs it, but there was still a lot of form filling we had to do for the accounts themselves, the trusts and for HMRC notification (the Trusts each have their own HMRC registration).
AIUI, it's just a wrapper like a SIPP or an ISA - the funds are held under Trust but they're invested by our DFM and appear in the same portal as our SIPPs amd ISAs. As another poster mentioned, it's a load of insurance policies and we have to decide each year whether to take the money as they mature, or reinvest it.
The purpose for us was to set aside some money for our kids but not give it to them yet. Setting up the Trusts starts the 7yr gift countdown straightaway.
You could set this up yourself directly, but I don't know (as I've never looked) how you'd do the investment of the money, especially outsdie of what Canada Life offer. We have an IFA and he directs it, but there was still a lot of form filling we had to do for the accounts themselves, the trusts and for HMRC notification (the Trusts each have their own HMRC registration).
Sheepshanks said:
The purpose for us was to set aside some money for our kids but not give it to them yet. Setting up the Trusts starts the 7yr gift countdown straightaway.
Don't forget the 'Regular Gifts from Excess Income'. Exempt from the 7 year rule. No limit on the amount, just need to keep proof that it really was excess income and not capital.
Jon39 said:
Do you remember the tale about Ken Dodd going to an Isle of Man bank or building society and then paying in cash?
Eventually HMRC took a snoop at that, because the gross interest received was not being declared.
HMRC lost the case, I think because they could not prove intent, but after that, Mr. Dodd included many HMRC jokes in his performances. -
Due to so many recent tax changes over last few years offshore bonds are nowhere near as tax effective as they used to be. Very much depends on the assets held. Do not believe the hype about “gross roll up wins” - of course it does if you NEVER cash bits or all of the bond in. The average tenure of an offshore bonds is 8 years. So they do get cashed in!
It is the NET returns anyone should be interested in and unless you are a non tax payer (a child) then an onshore bond could well be better. Much better.
This stuff is complex. Very difficult to buy offshore or onshore bonds without the help of a financial adviser. Let alone the complexities of wrapping them into trust. Trusts need special registration etc and layman should think hard about being trustees in terms of their obligations.
Careful advice is needed folks.
What is for sure the significant changes to inheritance tax coming from 26 and then 27 with pensions in scope means more “bonds and trusts” will be used like we have never seen before.
Take advice. And no I am not a financial adviser but I am a high qualified technical / investment and pension professional. So no axe to grind.
Be careful. Lots of silly things out there too.
It is the NET returns anyone should be interested in and unless you are a non tax payer (a child) then an onshore bond could well be better. Much better.
This stuff is complex. Very difficult to buy offshore or onshore bonds without the help of a financial adviser. Let alone the complexities of wrapping them into trust. Trusts need special registration etc and layman should think hard about being trustees in terms of their obligations.
Careful advice is needed folks.
What is for sure the significant changes to inheritance tax coming from 26 and then 27 with pensions in scope means more “bonds and trusts” will be used like we have never seen before.
Take advice. And no I am not a financial adviser but I am a high qualified technical / investment and pension professional. So no axe to grind.
Be careful. Lots of silly things out there too.
alscar said:
My wife and I both invested in International Investment Bonds some years ago at the same time as other new Investments - I wasn t particularly aware of them until my FA suggested them and then looking around I couldn t find a way of purchasing as a layman.
Within the IIB wrapper we invested in various Funds that we already knew of.
Relatively expensive charges at start up.
After being held for 5 years we can take annual withdrawals of around 5% of the pot with no tax or charges with any unused percentage being rolled forward.
They also come with life insurance thrown in.
Just gives flexibility as to any future potential income needed as say additional to ISA s although I m still content with using my Pension to provide dd funds especially as Rachel changed the rules on IHT.
If that's 5% of the original investment that sounds just like a conventional investment bond, just with added fees for pizzazz.Within the IIB wrapper we invested in various Funds that we already knew of.
Relatively expensive charges at start up.
After being held for 5 years we can take annual withdrawals of around 5% of the pot with no tax or charges with any unused percentage being rolled forward.
They also come with life insurance thrown in.
Just gives flexibility as to any future potential income needed as say additional to ISA s although I m still content with using my Pension to provide dd funds especially as Rachel changed the rules on IHT.
Main thing you need to know is that bonds are tax deferred and not tax free.
They allow you to control when and who the tax liability falls on. Bonds can be assigned, including part thereof, to other people before encashment.
As they don't create an ongoing tax liability they are commonly used to hold trust investments, to lower reporting requirements and assign to a beneficiary with a lower tax rate before extraction.
Someone in a high tax bracket whilst working, but lower in retirement could benefit from a bond if they've maxxed out pension and ISA.
The 5% withdrawal is simply letting you have your original capital back without tax. Each year since inception you can take another 5% of the sum put in. If you don't use the feature, it rolls up so after 20 years you could have the full 100% if you wanted. Any growth is still subject to income tax.
They allow you to control when and who the tax liability falls on. Bonds can be assigned, including part thereof, to other people before encashment.
As they don't create an ongoing tax liability they are commonly used to hold trust investments, to lower reporting requirements and assign to a beneficiary with a lower tax rate before extraction.
Someone in a high tax bracket whilst working, but lower in retirement could benefit from a bond if they've maxxed out pension and ISA.
The 5% withdrawal is simply letting you have your original capital back without tax. Each year since inception you can take another 5% of the sum put in. If you don't use the feature, it rolls up so after 20 years you could have the full 100% if you wanted. Any growth is still subject to income tax.
Sheepshanks said:
This is what we have: https://www.canadalife.co.uk/estate-planning/wealt...
Sounds like it wasn't very well explained to you.The WPA is a funky double trust setup, where the settlor retains a reversionary interest. It's designed to let you have parts of your investment back, should you need it, whilst getting the money outside of your estate after 7 years. Most normal trusts means the settlor can no longer benefit from the assets if it's to be efficient for IHT.
The WPA is split into lots of policies and a small number are set to mature each year on a rolling basis. If you don't need the money you put that batch back on the conveyor belt. You can also do stuff like stack more policies than usual to mature in a particular year whilst doing the reinvestments, by changing the maturity date. This is helpful if you're planning to cover a larger capital expense, like new car etc.
For the WPA to be effective the settlors cannot be trustees on one of the two trusts that are created and there have to be some trustees who are at least one step removed (ie not Mr & Mrs). However, the settlors still get a say in whether policies mature and if it's not a unanimous decision to reinvest, then the default is the next batch of policies mature. The long and the short of it is that the settlor still effectively controls if they get any money back. Wouldn't surprise me if this was caught by legislation one day.
If you don't need the money at all then you don't need a WPA.
alscar said:
After being held for 5 years we can take annual withdrawals of around 5% of the pot with no tax or charges with any unused percentage being rolled forward.
They also come with life insurance thrown in.
You can have 5% of the original value back after one year, doesn't have to be held for five. It's not 5% of the current pot including any growth.They also come with life insurance thrown in.
It's not really life insurance, they may pay a nominal 101% of the fund value but it's mainly just what determines when the bond ends.
The majority are setup based on lives assured. When the last life assured dies, then the bond matures whether you like it or not. This can trigger a chargeable event at the wrong time if you didn't include some younger lives assured, such as children.
A few are setup on a capital redemption basis, usually with something like a 100 year term. This is normally ample time for the bond to do its job and be wound up at a time of ones choosing for best tax efficiency.
PistonHead007 said:
Sounds like it wasn't very well explained to you.
The WPA is a funky double trust setup, where the settlor retains a reversionary interest. It's designed to let you have parts of your investment back, should you need it, whilst getting the money outside of your estate after 7 years. Most normal trusts means the settlor can no longer benefit from the assets if it's to be efficient for IHT.
To be honest I'm struggling to follow most of what you wrote, but the above was exactly what we wanted - we (we each have one of the Trusts) could still access the money if we want / need to, but at the same time the 7yr clock is running down.The WPA is a funky double trust setup, where the settlor retains a reversionary interest. It's designed to let you have parts of your investment back, should you need it, whilst getting the money outside of your estate after 7 years. Most normal trusts means the settlor can no longer benefit from the assets if it's to be efficient for IHT.
Things have changed somewhat with the IHT changes to pensions - our original retirement income plan was that we'd never need to touch the taxable parts of our SIPPs and, as part of our income, we'd take some tax-free money out of the Trusts every year.
Edited by Sheepshanks on Sunday 27th July 23:10
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