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05.01.2022

Onshore Bond Vs Offshore Bond

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Nadia Khan DipPFS Cert CII (MP), Fairstone Financial Management LTD Financial Adviser

Onshore Bond Vs Offshore Bond

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Towards the end of 2021, I received may questions around the difference between an Onshore bond and Offshore Bond. Here is my take on the difference between the two.

With an onshore bond, tax is payable on gains made (and investment income received) from the underlying investments of the life fund(s) invested in, whereas with an offshore bond no income or Capital Gains Tax is payable on the underlying life fund investments.

How they are similar

  • Onshore and offshore bonds are similar in many ways. Most importantly, both allow up to 5% of the accumulated premiums to be taken each year without any immediate liability to tax, which can provide a valuable source of tax-efficient withdrawals for many clients.
  • This allowance is cumulative so any unused part of the 5% limit can be carried forward to future years, provided the total withdrawn is never greater than 100% of the amount paid in.

How they differ

  • Because offshore bonds may be located in jurisdictions such as Dublin, the Channel Islands or the Isle of Man, there are important differences in how they are taxed compared to onshore bonds. Offshore bonds may also offer a wider choice of investments.

Who can they be suitable for?

  • Because of their differing tax treatment, there may be circumstances when an onshore or offshore bond may be more suitable. As always, however, tax should only be one of a range of considerations. 

Onshore Bonds

  1. Clients who live in the UK and have no plans to move or retire aboard
  2. Clients who are likely to be taxpayers when gains are realised
  3. Clients who want investments that are located in the UK
  4. Clients who wish to be treated as having already paid basic-rate tax on any gains.

Offshore Bonds

  1. Clients who live or plan to live abroad and will not be UK taxpayers (consider any overseas tax issues)
  2. Clients who are likely to be non-taxpayers when gains are realised
  3. Clients not using their personal savings allowance  or starting rate for savings against other savings income
  4. Non-UK domiciled clients who may become UK-domiciled for IHT purposes in the future.
  • Offshore Bonds
  • Investment Planning
  • Investment Bonds
  • Tax and Tax Planning
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Nadia Khan DipPFS Cert CII (MP) Fairstone Financial Management LTD Financial Adviser

I am an Independent Financial and Mortgage Adviser and have worked in Financial Services for over 12 years. During my career I gained experience in assisting both individual and corporate clients.…
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