In the last submission we touched on how there are many advisers who have recommended onshore bonds when the offshore alternative may have proved more effective.
More specifically, the situations of a husband and wife using assignments and those retiring abroad were mentioned.
Since writing the last piece I have presented at a number of seminars and covered these specific situations in more depth. It surprising that some advisers believe the tax treatment of an offshore bond is irrespective of residence.
At one seminar an adviser suggested that a client of his who was retiring abroad would be entitled to receive the 5% withdrawal allowance on his onshore bond without being subject to local taxation.
But it is the authorities in the country in which he is living - ie not HMRC - determine the tax legislation that applies to a non-UK resident UK domicile (with the possible exception of inheritance tax). It is possible that the local tax authorities would treat the withdrawals as income and tax them accordingly.
Even after explaining this, it was apparent that more than one adviser believed that the local tax authority would offer some form of credit for the tax paid at source on onshore bonds, but this is unlikely.
The point being made in the last article was that offshore bonds, being subject to no tax at source (except withholding tax), could only therefore be taxed once, whereas onshore bonds could potentially be taxed twice.
Frequently, providers are asked to provide support to advisers for clients who are moving abroad and often those advisers are disappointed with the inevitable negative response. It is not that providers are unwilling to assist but that they cannot do so from a liability stand point. (Even if we were to compile a database of tax legislation it would be out of date the moment it was completed as one country or another would have passed a new finance act!)
It is very easy to make assumptions about how other jurisdictions will tax clients and care needs to be taken to explain to clients that either they need to seek specialist advice on the subject or that advice applies only if they are UK resident.
Richard Leeson is international relationship manager at Prudential.
The views expressed are those of the author and not those of the company he represents.IFAonline
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