By Christine Hall, Offshore Port-folio Manager, AXA Isle of Man Figures provided by Ailo for the ...
By Christine Hall, Offshore Port-folio Manager, AXA Isle of Man
Figures provided by Ailo for the first six months of 2006 reveal that £4.38bn was invested in offshore single premiums - a 35% increase on the same period in 2005.
Data for the third quarter is not yet available but, according to feedback from Ailo members, the strong trend has continued. The more stable equity markets over the past couple of years, together with fairly flat interest rates, have increased people's interest in investment opportunities.
But why has there been such an increase in sales of offshore bonds? We keep hearing about the growing interest in the wrap account, but what can this offer that offshore investment 'wrapper' bonds can not?
A wrap account can be defined as "a platform upon which investors or their advisers can organise and transact their holdings, make use of different tax opportunities, and find tools to help with such things as asset allocation and risk appetite".
If that sounds like a familiar description to those who are already used to recommending offshore bonds, then it is hardly surprising. For many years offshore bonds have provided the freedom, choice and flexibility that investors crave.
These days, many provider companies have sophisticated websites that can assist with risk assessment, asset allocation, portfolio planning and rebalancing, online trading and all within the tax efficiency of an offshore investment bond.
With the availability of true 'open architecture', the offshore bond wrapper gives as wide a choice of investment funds as most investors could reasonably need. With the added flexibility and choice of currency, charging structures, bond type (life assurance or capital redemption) and the timing of when tax is paid, it is hardly any wonder that many advisers are turning to these products to meet their customers' needs. Clearly there is some very big business out there.
While the average investment into an offshore bond might be around £250,000, this is rather a meaningless calculation to make. The minimum investment into one of these products is typically around £15,000, but there is often no upper limit. This can lead to some substantial, multi-million investments being made and this trend is increasing.
Customers' needs that can be met by offshore investment bonds are reasonably well known these days and include some specific areas, as well as simply investing for tax-efficient growth. Inheritance tax planning remains one of the primary areas, despite the upheaval caused by the changes introduced in the Finance Act earlier this year.
Alternatives to pension investments, following the A-Day changes, are being sought through these products. Those planning to retire abroad may find that an investment held outside of the UK suits them best, while retaining a certain 'Britishness' by holding their money in a familiar jurisdiction such as the Isle of Man or the Channel Islands - especially if they are planning to pass wealth down through generations of their family who are themselves UK resident.
As offshore investment bonds gain credibility in the marketplace and as advisers and investors alike realise they are not exclusively aimed at the very wealthy, it is quite possible - all things being equal - that the trend will continue and offshore investment bonds will no longer be seen as a niche area by providers and advisers alike.
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First mentioned in Cridland Report
Second acquisition of 2019