Home > Products > Tax Benefits

Tax Benefits

New to offshore?

You might be new to offshore investing, or just want to find out more. This section of the website gives you information on the benefits of investing in offshore bonds and how the tax aspects work. The specific benefits of investing in offshore bonds depend upon your individual circumstances. But there are lots of generic benefits for UK residents which tend to apply in most situations:

Please note, these comments don't apply to AEGON Secure Lifetime Income, which is not taxed as an offshore bond.

Virtually tax-free growth

The investment funds held within offshore bonds grow virtually free of year-on-year life company taxation, unlike comparable onshore bonds which are taxed yearly on any income and capital growth. But some of the income received from these investment funds will be taxed before it's paid. This tax is known as withholding tax and we can't get it back.

No capital gains tax

You won't be liable to capital gains tax on fund switches made within offshore bonds. But if you made the same switches within a portfolio of direct equity or unit trust investments you may be liable for capital gains tax for the tax year during which you made the switches. So offshore bonds are often a more tax-efficient way for you to invest.

Access to your money

Offshore bonds let you have access to some or all of your investment money if you need it. Though as offshore bonds are long-term investments you may be charged if you withdraw your money in the early years.

You can take regular withdrawals from offshore bonds, accessing your capital in a tax-efficient way by withdrawing up to 5% of each investment amount every year as tax-deferred 'income'.

This 5% amount can be taken every year for 20 years, or built up over a number of years and withdrawn less frequently without triggering a 'chargeable event' for tax purposes (a 'chargeable event' occurs, for example, when you take out more than 5% a year, or you cash in your bond in full, triggering an income tax charge).

Tax control

Tax deferral is an important feature of offshore bonds. This lets you choose when you may be charged tax, as this will be when you cash in some or all of your bond. The tax payable on a chargeable event will depend on your highest marginal rate at that time. This allows you to put off such an event until you're either no longer a taxpayer or have moved from being a higher rate taxpayer to a lower or basic rate taxpayer or have moved to a country with lower taxes. You should bear in mind that if you do move to a different jurisdiction, the benefit of tax deferral may be lost.

Inheritance tax planning

Putting your assets in an offshore bond held in trust means you can mitigate, or avoid altogether, taxes due when transferring wealth. If you have any assets above the nil rate band (the threshold above which inheritance tax applies) which aren't held in trust, they may be liable to inheritance tax at 40%. Also, an offshore bond and trust can be structured to allow you access to the funds before you die.

Self-assessment friendly

As offshore bonds are 'non-income-producing assets', there's nothing for you to report to the HM Revenue & Customs until a chargeable event. You don't have to include any information on your tax return before this point, compared with the potentially complicated requirements for reporting income and gains on a portfolio of unit trusts. When you do need to include information on your tax return under self-assessment, it's also generally much simpler to report a chargeable event gain from an offshore bond, than the income from a portfolio of unit trusts.

Non-UK status

As offshore bonds aren't UK-based investments, this can help you mitigate your UK tax bill if you're a UK expatriate or a foreign national living in the UK. A fundamental benefit of an offshore bond is that it provides a 'tax wrapper' around your investment choices, with potentially more favourable tax treatment than an onshore equivalent. Specialist advice is necessary, however, as offshore bonds can be an unsuitable investment for some investors in this position.

All references to taxation are based on our understanding of current taxation law and practice in the United Kingdom and the Republic of Ireland, which may change. Please remember that benefits aren't guaranteed and the value of investments may go down as well as up.

Always seek advice before making an investment choice.