Life Insurance Guide | Insurance Help Product Information | Offshore Bonds

A number of offices have offshore bonds which are unit-linked bonds issued by a subsidiary in countries such as Luxembourg, the Channel Islands or the Isle of Man. The advantage is that the country concerned will impose little or no tax on the income and gains of the underlying life fund – thus allowing what is often called a ‘gross roll-up’, which is valuable to a higher rate taxpayer. This is in contrast to an onshore bond where the fund suffers tax at 10-23% on income and gains. However, two factors should be remembered:

The securities or other investments held in the bond may be subject to withholding tax in the country of the investment origin. Withholding tax is often charged on dividends from equities or rent from property. It is not normally charged on interest from deposits and fixed interest securities.

When an offshore bond is taxed, a UK policyholder is chargeable to income tax on the gain at the basic and higher rates, although top-slicing relief is available for the higher rate tax calculation. In particular, this means capital gains are fully taxed whereas