Offshore Bonds ? Advice sought

[eddie1]

Anyone know how offshore bonds work ?
How viable are they ? Are they legit ? Are they safe to use ?

[draftsmann]

I spent the 1990s employed by several offshore bond providers as a product designer, and continued doing similar work for a good few years after that as an independent consultant.

These products have been around for a very long time - certainly since the 1980s, if not before, and the tax legislation dealing with them is well-established. Apart from closures of a couple of blatant loopholes and some peripheral tidying, their UK tax treatment has been stable through numerous changes of government, and can be very favourable to some investors, as I’m sure your IFA will already have outlined to you.

Historically the biggest centre for hosting these products has been the Isle of Man, where a number of British household name insurers set up subsidiaries in the 1980s. However since then most of those providers have been the subject of takeovers and management buyouts, and in my view and based on my experience in recent years the quality of service in that jurisdiction has fallen way below any acceptable standard.

For optimal quality of service and investor protection if I were you I’d want my IFA to recommend a Luxembourg provider.

[Tifa]

Ex IFA here.
What's your rationale for going offshore?
As has been said, the advantageous loopholes are long gone and when you do the maths, there's not a lot of difference between onshore/offshore.
You'll need to declare ownership of the bond to HMRC. (Not the case with onshore)
They can be a pain in the arse when you come to surrender or part surrender i.e. bringing the proceeds back on shore....nearly always requires advice, the costs of which which can eat into any accumulated growth. Get it wrong and it can be expensive.
For the most part they are unregulated, you'll have no recourse to support from the FCA if the company fails starts acting up.
Most offshore business isn't protected by the FSCS. Therefore unlikely you could make a claim if the investment failed.
Look closely at additional charges that can sometimes be applied.
Sorry to sound so negative, do go and talk to your IFA.

[draftsmann]

Ex IFA here.
What's your rationale for going offshore?
As has been said, the advantageous loopholes are long gone and when you do the maths, there's not a lot of difference between onshore/offshore.
You'll need to declare ownership of the bond to HMRC. (Not the case with onshore)
They can be a pain in the arse when you come to surrender or part surrender i.e. bringing the proceeds back on shore....nearly always requires advice, the costs of which which can eat into any accumulated growth. Get it wrong and it can be expensive.
For the most part they are unregulated, you'll have no recourse to support from the FCA if the company fails starts acting up.
Most offshore business isn't protected by the FSCS. Therefore unlikely you could make a claim if the investment failed.
Look closely at additional charges that can sometimes be applied.
Sorry to sound so negative, do go and talk to your IFA.

For most people (other considerations apply for anyone with non-dom status) the main benefit of offshore vs onshore comes down to gross roll-up of the underlying investments vs life fund tax on income and gains. I would certainly agree that any good IFA should weigh up both options in light of the client circumstances and needs.

I’m afraid I have to take issue with your comment that these products are “unregulated”. Simply not true- the FCA doesn’t have a monopoly there, and its own track record where failed investment schemes are concerned isn’t perfect. Plus of course the IFA him/herself is regulated in the UK. More importantly, investor protection in those jurisdictions a UK IFA will typically recommend is very much up to scratch.

I’m aware that some IFAs don’t feel these products are suitable for many of their clients and that is fair enough, but any decision should be based on fact.

[Space Traveller]

I used to audit all the IOM life companies back in the day. That part of my life I’ll never get back. Weeks on end spent at RL360 on the business park.


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