Leading expert launches dedicated insurance-based investment products advice team

Offshore bonds aka PPLI aka Insurance based investment products

John Lamb Hill Oldridge offers advice and intermediation (placement) and ongoing servicing for offshore bonds and is fully regulated to give this advice in the UK. It doesn’t offer investment management of the underlying funds.

With the possible rise in CGT and maybe even a rise in income tax, holding investments through an offshore bond is becoming increasingly attractive for shorter periods of time. To recap on the benefits:

• Investments within a bond do not incur income tax, capital gains tax, or corporation tax on an ongoing basis or incur VAT on discretionary fund management fees.
• A bond allows an individual to withdraw up to 5% per annum from the initial investment without an immediate income tax charge for up to 20 years on clean funds, if mixed funds are invested then remittance to the UK will be a remittance of mixed funds.
• The withdrawal allowance works on a cumulative basis, therefore, if the client does not withdraw any funds in year 1 they would be able to withdraw 10% in year 2.
• Some providers have the ability to facilitate the reclaiming of tax paid on international dividends within the portfolio which is estimated to generate an extra 0.50% per annum.
• There is no CGT charge on realised gains within the bond and importantly if a client wanted to switch fund manager, which normally leads to significant stock switches and realised capital gain, then there is no CGT payable on those realisations’ switches, allowing for ease of fund manager switch if required.
• In the offshore market the client can appoint their chosen managers for the funds or use a platform and select their own investments.
• If a client leaves the UK in the future, they will pay the income tax rate in that jurisdiction.
• If a client has clean funds and mixed funds then we would recommend separating the investments into 2 separate bonds, 1 for clean funds and 1 for mixed funds.
• As the bond is a life insurance policy, it would expire when the final life assured dies. Normally bonds are written on multiple lives including the younger generations.

Downsides

• All accumulated income and capital gain is subject to income tax when realised – the tax free roll up to realisation means that this drawback (comparing 45% income tax to 20% CGT) disappears after the bond has been held for 10 years. If the bond is realised prior to that, in excess of the 5% annual allowance, then you could find that more tax is being paid than in a direct holding.
• There are some investment restrictions in terms of holding funds through a bond: the monies need to be invested through funds or if held in direct equities then the portfolio needs to be a standard portfolio that the fund manager chooses and the client cannot have input into stock selection.

Structuring the bond

As a life insurance policy there are a number of attractive ways to structure the holding of bonds and they make excellent holding structures for trust investments.

For more information or to discuss a client’s requirements do please be in touch.