What are offshore investment bonds and their tax benefits?
Offshore bonds are an investment ‘wrapper’: a tax efficient container you can fill with pretty much any investment you like, though usually with the exception of physical property.
They can be attractive because of their tax efficiency in certain countries.
To put it simply, if you invest in a fund directly, you could be liable for tax in some countries. However, if you hold the same fund in a bond, you could save or at least defer that tax.
The value or significance of these benefits depends on the tax rules of the country in which you reside for tax purposes.
If you live in a high-tax jurisdiction such as the United Kingdom, you may find the tax benefits of the bonds relevant and valuable to you. Conversely, if you live in a low or no-tax jurisdiction such as the United Arab Emirates, you may find investing through a bond makes little or no difference at all to your tax position. In fact, you could be building up a large future tax liability.
Despite this, perhaps because of the levels of commission involved, international advisers tend to present offshore bonds as the panacea for all expat investors. Indeed, they are the most commonly held investment product amongst expats.
Who are the main offshore investment bond providers?
The main providers are typically the offshore arms of large international insurance companies. These include:
• AEGON Scottish Equitable International
• AXA Wealth International
• Canada Life International
• Clerical Medical (CMI Insurance Limited)
• Friends Provident International (soon to be Aviva)
• Hansard International
• Generali International
• Irish Life International (now SEB)
• Royal London 360 (now RL360)
• Royal Skandia (now Old Mutual International)
• Zurich International
