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Ever since the Sandler report recommended the abolition of the
Section 739 friendly policies, the Chancellor has been
threatening to remove the 5% deferred tax rule.
Under current legislation, expatriates can establish a
tax-efficient investment wrapper from which withdrawals of up to
5% per annum of the initial investment can be taken for up to 20
years without incurring an immediate tax liability. For those
who repatriate, this 5% is additional to their income tax
allowances.
Though the Chancellor has not yet abolished Section 739 friendly
policies, over recent months the treasury has tightened the rules
for qualifying policies. The new rules state that policies that
hold individual shares or investment funds with a fixed maturity
date will be deemed as ‘highly personalised’ investments and
will qualify for section 739 friendly status.
Whilst not
mentioned in the pre-budget report, there are fears in the
industry that Gordon Brown may look to abolish section 739
friendly policies (which allow the 5% tax-deferred income to be
taken) sooner rather than later.
So is it still worth setting up an offshore investment bond?
Whilst last years revised regulations limit further the holdings
of a qualifying policy, portfolio bonds remain an excellent
holding vehicle for those looking to hold a variety of asset
classes in a tax efficient manner. Likewise, it is unlikely that
any abolishment of section 739 will be applied retrospectively
so policies established now should continue to provide a
tax-efficient income regardless of any future changes. Other
benefits of a portfolio bond to lump sum investors include:
Tax Deferral
Because income and gains grow free of tax the policyholder can
defer any tax liability on their capital until the benefits are
taken. The ability to defer tax gives the investor the
opportunity to decide when to pay tax. For example, people who
intend to become resident in a country that does not tax
investment bonds, or people whose income will fall or non tax
payers who can offset gains against any unused personal
allowances. In most countries bonds are considered non-income
producing.
Investment
Choice
Offshore bonds allow access to the world’s major
currencies, to a range of world-wide funds and expert specialist
fund managers with proven expertise. The greater the access, the
greater the scope for successful investment. A bond offers the
ability to restructure and change investment policy within the
bond without changing investment vehicle
Additionally, bonds can generally obtain better discounts/terms
from investment houses than an individual could on investment
funds and we pass these on to our policyholders.
CGT Free Asset Switches
By actively managing a portfolio of funds the investor can
switch between funds without incurring any tax liability.
Normally any fund disposals incur a capital gains tax liability
if funds are held directly depending on the country of
residence.
Administration
Regular valuations keep the plan holder informed about the
progress of the bond via a comprehensive statement detailing all
transactions and funds held. For a high net worth client with
numerous investments throughout the world centralising the
assets under a bond wrapper may be attractive as on death this
would only involve obtaining Manx Probate rather than probate in
each country the assets are held in.
A professional administration service carrying out all
transactions and involving the minimum amount of client time is
available. Clearly for a wealthy investor this takes away all
the time consuming hassle of paperwork.
Non-Residence Tax Relief
Any periods of non-residence will be relieved of income tax and
on final encashment top-slicing relief may be used for any
periods of UK residence if the tax payer is within the basic
rate tax band. This may keep the taxpayer within the basic rate
band and save 18% tax on any chargeable amounts.
CGT vs Income Tax
Until now, it has been a feature of UK tax law that individuals
who made capital gains were not chargeable to UK CGT if the gain
was realised while they were non-UK resident or ordinarily
resident. Clause 127 Finance Act 1998 changes that position.
Under the new rules, individuals who have been UK resident for
at least four out of the previous seven tax years prior to the
tax year of departure will continue to be liable to UK CGT on
disposals they make whilst non-resident if they return to the UK
within five years. The new rules apply to individuals who leave
the UK after 17th March 1998, and apply to assets they held
prior to their departure. If the individual is UK domiciled, the
charge will be on worldwide assets.
An alternative and potentially much safer approach for such
individuals would be to contribute to investments which are not
subject to CGT i.e. offshore regular and single premium life
assurance policies. They are fully portable, as the investor
moves from jurisdiction to jurisdiction. In most countries, no
tax charge arises until the benefits are taken. Under UK tax law
the proceeds are subject to income tax, and thus not affected by
the new CGT rules.
How can Candour Consultancy help?
As discussed above, whilst the Chancellor may systemically
remove the benefits of an offshore bond, it is unlikely this
will be done retrospectively. As such, it is vital that anyone
looking to protect their savings from inheritance tax, return to
the UK in the foreseeable future or use the money they save
whilst living offshore to draw an income, establish an offshore
bond as soon as possible.
Candour
Consultancy advise on a wide range of offshore bonds which are
accessible with savings as low as £10,000 (US$ 15,000) and offer
the facility to draw an income (or lump sum of up to 85% of the
bonds value) from day one. Additional ad-hoc lump sums
can be added at a later date.
To request further information on the structure, uses and
benefits of offshore bonds or to request a meeting with one of
our consultants to discuss offshore bonds in person, just
click here to provide us with your preferred contact details
and a brief indication of how we can help.
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