Investments

Offshore Investment Bonds
Offshore Investment Pensions
Offshore Funds

The Financial Services Authority does not regulate offshore investments or tax planning. When investing offshore you may not be afforded the same protection given to investors investing in UK-based funds.

Offshore Investment Bonds

Offshore investment bonds are available to UK residents in various guises, allowing gross roll up and deferral of taxation until maturity, when the penalty will be the taxation of the whole gain as income. Even with recent relaxations in the capital gains tax regime, these bonds may still be attractive for some individuals.

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Offshore Investment Pensions

Pensions investment can also include an offshore element, although in the UK the tax advantages of pensions have been steadily eroded with regards to other tax-efficient investments, which are more flexible. In particular, for high-earners, the pension provision over and above that allowed for tax purposes can be invested in an offshore Funded Unapproved Retirement Benefit Scheme (FURBS). However, the Inland Revenue has so far refused to give these investments 'pension' status. The non-UK life assurance sector has been particularly innovative in these types of products.

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Offshore Funds

Many offshore funds are operated by subsidiaries of well-known onshore institutions. Such funds are able to offer a wider range of investments than their onshore counterparts owing to the differing regulation offshore. Different types of regulation can mean less security but the very diverse nature of the offshore market means that generalisation can be misleading. A professional Independent Financial Adviser can identify well-run investments that make the most of the tax advantages that offshore regimes have to offer. Income distributing funds pay their income gross which is particularly attractive to non-taxpayers. Where offshore fixed interest funds are structured as companies, investors pay tax on dividends effectively at lower rates than they would with equivalent onshore funds because corporation tax rates tend to be lower.

Equity-based investments in particular are intended as medium to long term investments (usually considered to be five years or more). Because they are equity-based, they are dependent on stock market movements. It also means your capital is not usually guaranteed to be safe and so you may lose some or all of it.

If the investment is a unit-linked one, its value can reduce in direct relation to the stock market prices of its underlying assets, although it can also rise. This means you may not get back all the money you invested. If it is a with-profit arrangement, there is not the same direct link between the underlying assets and the value of your policy. This is because the insurance company holds back some profit from good years to offset losses in poor ones - this is referred to as smoothing. The provider cannot withdraw any reversionary bonuses declared, although your early withdrawal may result in a Market Value Adjustment - effectively a financial 'penalty'.

Levels and bases of, and reliefs from, taxation are subject to change and any tax reliefs referred to are the current ones and their value will depend on the circumstances of the individual investor.

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