An offshore investment bond is an investment wrapper that can be used as an investment vehicle to control when you pay tax, how much you pay and whom you pay it to. Offshore investment bonds are also referred to as portfolio bonds and tax wrappers.
An offshore investment bond is a wrapper set up by a life insurance company and domiciled in a jurisdiction with a favourable tax regime, such as the Isle of Man, Luxembourg, or Guernsey.
Increasingly, international clients are also opting to use Dublin to benefit from perceived increased regulatory protection and tax efficiency.
Internationally, offshore bonds are typically provided by global life insurance companies.
Within an offshore investment bond, investments benefit from growth that is largely free of tax – often referred to as gross roll-up. This can have a significant impact on returns.
Unless the money from within the offshore bond - as either income or capital - is brought into the UK, it is not subject to UK taxes.
Investors must therefore be aware of the tax regime in which they are resident when they encash their bond.
Choosing the provider and location of your offshore bond is therefore important, as this will dictate many of the rules surrounding taxation and access.
Many of the offshore bonds available are transparent, low cost, efficient tax planning structures - although great care must be taken considering such a tax wrapper.