New research from FundsNetwork suggests offshore bonds are seldom the most tax efficient product for a UK based investor.
However, Paul Kennedy, director of tax and trust planning solutions at FundsNetwork, and the report’s author, says the point of the study is to emphasise the need to decide what kind of tax wrapper to use after settling on an asset allocation, rather than trying to shoehorn an unsuitable asset mix into a pre-selected wrapper.
“Investment tax planning should be approached with a blank sheet and an open mind,” he said in the foreword to the report, Insurance bonds and collective investments – a treatise on investment and tax planning post-Budget 2008. “Any pre-ordained desire to use one tax wrapper over another runs the risk of looking for reasons to justify that wrapper and imparting our own prejudices into the equation.” FundsNetwork offers both onshore and offshore bonds, as well as straightforward collectives.
Examples in the report show a return of 40-67% more from growth-based assets held in collectives by a higher-rate taxpayer than in an offshore bond, though for interest-based assets an onshore bond produced the best return.
However, Kennedy added that he does not believe offshore bond sales will be dented by the new capital gains tax regime. “If you look at an offshore bond for a UK resident, UK domiciled client, it is not the most tax-efficient,” he said. “But there might be more at play when a client buys an offshore bond – such as current or future residence and domicile – and then all the things we know offshore bonds are good for come into play.”
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