Offshore Bonds: Key Tax and Practical Issues for Individuals & Trustees

Overview of Tax Rules on LA Bonds

• Comparison with other investment-holding vehicles

• Holding bonds in segmented form

• Tax charges on encashment, including: ‘Top slicing relief’ (TSR)

• Impact on Personal Allowance abatement and High-Income Child Benefit Charge

FA 2020 changes to TSR calculations:

• Treatment of personal allowance

• Allocation of other allowances

Finance (No.2) Act 2017 changes to the rules on partial encashments

Comparison of UK and offshore bonds

Personal Portfolio Bonds (PPBs)

• What they are and why they need to be avoided

• Permitted investments

‘Time-Apportionment’ Relief

• Following periods of non-residence

Bonds Held in Trust

• Who is liable for any tax charge on encashment?

• Tax rates applying

• Practical problems and tax traps: Case study on the appropriateness of an investment bond for trustees of an interest in possession trust

Uses of Offshore Bonds

• ‘Gift and loan’ trusts

• ‘Discounted gift trusts’

Losses

• Deficiency relief

Training Objectives

By the end of this offshore bonds training, participants will:

• Know what a ‘personal portfolio bond’ (PPB) is and why they must be avoided

• Understand what investments can be held in a non-personalised offshore bond

• Understand the planning opportunities presented by the segmentation of bonds when partial encashments are made

• Know the pros and cons of using an offshore bond as a tax wrapper, including: How top slicing relief (TSR) can mitigate tax charges

• How ‘time-apportionment relief’ can reduce charges where the investor has lived abroad

Understand the changes to the TSR in the Finance Act 2020 and how they impact tax liabilities

Appreciate how apparently well-timed encashments can produce large tax charges

Know that there is only very limited relief (‘deficiency relief’) for losses

Understand how encashments of bonds by trustees may produce a tax charge on the settlor, trustees, beneficiary or no one (depending on the circumstances)

Understand how ‘gift and loan’ and ‘discounted gift’ strategies involving trusts can mitigate Inheritance Tax

Training Course Summary

This course will introduce delegates to the area of offshore bonds and examine the main advantages and tax traps associated with them. It will be of use to wealth managers, lawyers and accountants who deal with them in practice.

Delegates will be reminded of the main characteristics of investment bonds, and the distinctions between UK and offshore bonds will be explained. Of particular importance is an understanding of the limits that are placed on the investments that can be held in the latter, to avoid the onerous anti-avoidance rules covering ‘personal portfolio bonds’.

The tax issues associated with bonds held by trustees will also be covered.

The course material will contain plenty of numerical examples to help explain what are often complex tax rules.