These days, it makes good sense for investors to keep all their options open, and one such opportun...
These days, it makes good sense for investors to keep all their options open, and one such opportunity is the offshore investment market.
Many investors stop short of the real gains to be made in this area by going for a simple offshore bank or building society account. But if they want something more exciting, they should consider investing in an offshore collective investment bond.
Once the domain of the wealthy, offshore investments now court a completely different type of investor.
Informed decisions on investments are leading the field as far as the modern educated investor is concerned and anyone who takes their investing seriously should not consider they have done a thorough job if they have not included offshore bonds in their portfolio. These bonds are designed for investors that recognise the economic advantages and straightforward approach of unitised funds but also want access to the potential offered by a wider investment choice.
The bonds can be based in the Isle of Man, Jersey, Guernsey and Luxembourg, or anywhere else considered a tax haven.
Available to UK residents aged between 18 and 89 at entry, a minimum premium of £25,000 with the ability to add further investments of £2,500 or more at any time is the most common structure.
The trick with these products is that the collective investment bond allows investment into a massive range of managed funds, plus most other authorised collective schemes including building society funds, deposit funds and funds managed by leading investment groups.
These include the likes of Barings, Fidelity, Gartmore, Hendersons, Jardine Fleming and Lazards.
There are a huge number of fund management groups eager to entice investors. Such a diverse and flexible arrangement, offering a choice from the top investment managers, shows this is an extremely versatile investment.
The only limitation is that most investment houses prefer that investment holdings to be no less than £2,500. Dealing charges are transparent and each company has its own way of costing its contracts.
Most make no internal switch charges so there is no object in the way of the active investor. The unit prices take into account the company's annual management charge, which currently averages 1.5% per year of the value of the fund.
Tax treatment of these bonds is in line with all other offshore investments and the fund grows gross of any UK taxation. Income tax will only become payable if or when the proceeds of the bond are repatriated.
Some 5% of income can be taken as tax-free per year, irrespective of the UK tax rate. This is because 5% is deemed as return of the original capital and as such is not taxed as earned income. If clients are looking for an offshore investment that allows access to a massive range of risk-rated funds, they could do a lot worse than choose an offshore collective investment bond.
Frank Cochran is managing director of Wolverhampton-based FSC Investment Services
offshore tax legislation
The legislation that currently determines the way returns to UK investors in offshore funds are taxed dates from 1984. (This legislation in sections 757-764 and Schedules 27 and 28 Income and Corporation Taxes Act 1988 is referred to as the offshore funds regime.) Its aim was to prevent investors using such funds to reduce, or even eliminate, the tax they would otherwise pay on their savings income and that aim remains today. The Government believes that UK residents should pay tax on their investments in offshore funds to the same extent as they do on comparable savings products such as UK-based unit trusts. But at the same time it recognises that the offshore funds regime, which has remained broadly unchanged since its introduction, may no longer be the be the best way of achieving this aim.
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