A-Day has given an extra boost to offshore bonds in that there are no longer rules in place that bar...
A-Day has given an extra boost to offshore bonds in that there are no longer rules in place that bar Self Invested Personal Pension (Sipp) trustees from investing in them.
Originally, the position for Sipps investing in insurance-linked funds was that it was permitted as long as Revenue approval was obtained beforehand. This changed in 2001 with the enactment of SI 2001/117 - Personal Pension Schemes (Restriction on Discretion to Approve) Permitted Investments Regulations 2001. These contained provisions that only permitted unit linked insurance contracts if the provider was EEA resident, thus barring Sipps from investing in non-EU contracts - those written from the Isle of Man, for example.
In its Pension Tax Simplification Newsletter No. 13 on 28 April 2006, HM's Revenue & Customs (HMRC) confirmed that SI 117 is one of the regulations now repealed by Part 4 of the Finance Act 2004. This is great news because it now allows any offshore bond to be placed into a Sipp. But why would an investor want a bond wrapper in a Sipp?
From a tax position there is no advantage to holding an offshore bond wrapper in a Sipp - the Sipp investments are already in a gross roll up environment. So the two main reasons to do so are investment choice and administration.
The former may be a reason where the life company offers a fund that Sipps cannot access directly - for example a guaranteed fund, or a specialist property or other fund that is only available through the life company's products.
The second reason will be attractive to those who have bought the basic Sipp wrapper from a specialist Sipp provider, and want a relatively cheap and convenient means of administering investments. Holding an offshore personal portfolio bond in a Sipp allows the trustees to tap into the life company's administration services.
Such services will normally include a dealing desk that gives access not only to UK equities but also equities in most major markets. Other services will normally include the ability to hold cash and investments in most major currencies and access to specialist offshore funds, for example hedge funds, usually at discounted entry levels.
In a nutshell, the bond wrapper is worth considering as a possibly cheaper alternative to a stockbroking service.
There is also a good opportunity for investment advisers who deal with UK expatriates. Currently, most will only look after the client's non-UK pension pot, as the UK pension would normally have been frozen on becoming non-resident. Under the new pensions regime, an expatriate can continue to make unlimited contributions to a UK pension and, furthermore, they will receive an uplift in the lifetime allowance for non-tax relieved contributions made while non resident.
If Sipp investments are held via an offshore bond, this allows the overseas adviser to advise on this aspect of the client's investment, and there is no reason why this should not follow the same investment strategy as any non-UK pension investment holdings.
Even better, if you are the investment adviser on the bonds, it means that your relationship with the client can continue after he has returned to the UK. The long-term nature of pensions means that the client-adviser relationship can continue for many years.
£92bn transferred since 2015
Achievements, charity work and other happy snippets
Since first announcement