More people are turning to offshore bonds as part of their inheritance tax planning, according to a report from financial research firm Defaqto.
Defaqto says the offshore bond market grew by almost 50% to £7.4bn in 2006, after a 60% rise in 2005, despite uncertainty over estate planning and trust legislation.
The research highlights continued outward migration, international portability and tax advantages are contributing to sales growth.
Fraser Donaldson, principal consultant at Defaqto, says: “It’s a function of education and knowledge.
"The word’s got out as it were, when you’re thinking about investment bonds, the advice was to stick with the UK variety. Offshore bonds have become cheaper, more accessible, the minimums are getting lower.
"The demographics are in their favour as well, there is still lots of migration out of the UK, more people are retiring out of UK, and offshore bonds portable.”
A further boost in the market is expected to come from the HM Revenue and Custom’s tax evasion crackdown. This will encourage people to move offshore assets into more transparently legitimate investments.
Donaldson says: “I would imagine will be a considerable boost. Not just because of the UK revenue but all around the globe – there is nowhere else to hide.
"You would hope that those who have been abusing in the past will go legitimate and there are tax advantages there.”
Defaqto believes there is a need for more advisers willing to look to the offshore market to meet their clients’ needs, as well as more providers to maintain the momentum by targeting lower premium but higher volume business.
Donaldson estimates currently half of advisers “have it in their minds” and do occasional offshore bonds business. He believes the number of advisers who regularly look to offshore bonds is about 60.
The research includes a survey of 500 IFAs, which shows the quality of the administrative process is significant. Defaqto says it confirms that service issues are becoming a greater differentiator between providers.
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