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Taxation of Offshore Bonds


'Foreign policies of life insurance and foreign capital redemption policies' is how offshore bonds and life assurance products issued outside the UK are classified by HMRC for tax purposes. These policies are non-qualifying in the eyes of HMRC, which means that all gains realised through the holding of them are potentially taxable. As a result, offshore bonds are classified and taxed in much the same manner as UK investment bonds, which means there are a number of special rules that apply.

Do you hold offshore bonds or protection policies? Are you concerned about how they are taxed or how much tax you are liable to pay? If so, you should consider seeking financial advice. In the meantime, this section covers an introduction on how these policies are taxed for UK individuals.

Firstly, when an investor pays into a life assurance bond the company pays capital gains tax at a rate of 20%. As this is equivalent to the basic rate of tax, once the bond matures, only higher rate taxpayers are liable to pay any further income tax on the gain.

However, as offshore bonds can be issued by companies from jurisdictions that do impose income or capital gains tax, an offshore bond could reduce the amount of tax the holder pays. Whilst gains are unlikely to be completely tax free this situation, which is known as 'gross roll up', could lead to a holder paying less tax.

Landlords or anyone who rents out a room in their home can also reduce their tax bill by taking advantage of one or more of several government schemes.

There is also a difference in the top slicing of an onshore and offshore bond. To calculate the number of years for top slicing purposes of onshore bonds, one should divide by the number of years between the last event to the current one. On the other hand, for an offshore event the years are calculated by dividing by the total number of policy years.

As you can see, the taxation of offshore bonds are no simple matter. If you would like further assistance or more information on this subject please contact us through the email address below

Taxation of Offshore Bonds


Hopefully, these will provide some useful background on the issue, and equip you to make informed decisions and choices in this most financially sensitive of areas.

If you would like further assistance or more information on this subject please contact us through this email link enquiries@taxworld.org

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