June 25, 2018
In the wake of Brexit, there is a growing trend of British expats rushing to secure residency outside of Britain. This, it seems, is not limited to the British pensioner retiring to sunnier climes. Rather, under 55’s and millennials are opting for greater access to the continent; along with a better lifestyle, lower cost of living and greater financial freedom.
Regardless of age or motivations, efficient cross-border planning is key to a successful move. Furthermore, the globally mobile need their investments to be portable and tax efficient whilst also ensuring their estate plans go unhindered.
One investment in particular stands out as offering all of these features yet is free of convoluted planning and burdensome administration – the offshore bond.
The offshore bond
The offshore bond is an investment wrapper that affords the policyholder a diverse range of investment options, along with built-in flexibility to adapt to changes in individual circumstances, such as country of residence and attitudes to risk.
The bond is widely recognised globally – unlike other wealth structures such as trusts – and the law and regulations in comparison are relatively straightforward, making it an effective portable wealth solution.
The benefits
There are also a number of tax advantages, most notably the bond is non-income producing. As a result, it benefits from a gross roll up of the investment with a deferral of tax until surrender (or other chargeable event) – at which time the bond is subject to the income tax rules of the policyholder’s country of residence. This unique feature can give the policyholder unprecedented flexibility and control over when and where they pay tax on the bond. Switches can be made to the underlying funds without a capital gains tax charge. Therefore, the bond not only benefits from income tax deferral but also is not subject to Capital Gains Tax (CGT).
The bond is also an effective estate-planning tool. Dependent on the policy-holder’s country of residence, it may be possible to make assignments by way of a gift, hold the bond in a trust, or take out a capital redemption bond that can be passed on to a future generation.
Moving overseas
This succession and wealth planning vehicle is also a useful tool when moving overseas, for instance, to Spain, where a large community of British nationals live in mainly the seaside areas. As in the UK, Spain has in place a specific tax, legal and regulatory framework around the bond, which is fully complied with, both by the Insurers and the investors in order to ensure that the product is compliant, efficient and in line with the objectives agreed upon at the outset of the planning.
In this sense, it is worth mentioning that many British expats living in Spain have had some issues with their offshore bonds during their time there and that local courts have ruled on these products on several occasions in favour of the investors’ claims. For instance, one of the latest cases has involved an offshore insurer who was not duly authorised to distribute its products within Spanish territory and to Spanish residents (which includes British expats living in Spain).
At OneLife, we understand that offshore bonds must be fully compliant with the different markets in which our clients live. For this reason we work with locally qualified lawyers to tailor our bond to ensure compliance with the regulations in the relevant jurisdictions. In the case of UK expats moving overseas, this is no exception as OneLife offers the most suitable and compliant solution on a case-by-case basis and notably by taking into account the criteria of residence and nationality. In addition, OneLife makes available to its British expat clientele a full range of services which includes a local Sales team, tax and legal specialists and English-speaking Customer Services representatives.
Moving back to the UK
If after a period of time, a British expat decides to return to the UK, the bond will benefit from an annual 5% withdrawal on a tax-deferred basis, and time apportionment relief on surrender. This relief ensures that on surrender, the bond is only subject to UK income tax in proportion to the days of UK residence during the life of the bond.
We offer legal expertise, tailored bonds and additional support when the client moves, to ensure the bond remains compliant across borders.
For more information about this topic, please contact our experts.
