An objective for many doctors is to secure not only their own financial future but also that of their children. Offshore bonds can help with this aim and offer both tax-efficiency and simplicity.
The option that parents often consider first when saving for their children is a Junior ISA. Junior ISAs are attractive because of their simplicity. There are no complicated trusts yet the money is clearly set aside for the child, it grows tax-free and withdrawals are also not subject to tax (noting withdrawals are not permitted until the child is 18). However, under the Junior ISA rules when a child reaches 18 they gain total control over the account, which becomes an adult ISA in their own name.
It has been estimated that parents investing the maximum contribution each year into a stocks and shares Junior ISA could build a fund of over £150,000 for their child. While this is an impressive result, the very size of the sum means that many parents would feel uncomfortable about giving their child complete control over this money at age 18.
Where this is a sticking point, there are other options available to consider. For doctors who have not used their personal ISA allowance, contributions into in an ISA in their own name would enjoy the same tax advantages plus control over when and how the money is spent would be retained, e.g. the money could be gifted to the child when needed for university fees or a house deposit for instance.
For doctors who already maximise their ISA allowance, offshore bonds are another alternative that offers tax advantages. Within an offshore bond an investment grows virtually tax-free (except for withholding tax). At the time when the child needs the money, segments of the bond can be gifted to the child to encash in their own name. As well as controlling how much they receive and when, this also manages the tax liability on the withdrawals. As it is the child that encashes the segments they have been gifted, any gains on the investment will be taxed on them rather than the adult. This could save significant amounts of tax if the child is a non-taxpayer and the adult is a higher rate taxpayer for instance. In this way doctors can drip feed money to their children in a tax-efficient way, rather than them gaining access to a large lump sum at age 18.
Please note this article is not intended as personal advice. The value of tax benefits depends on individual circumstances and tax rules are subject to change by the government. If you are interested in this area of investment please contact Richard Higgs CFP FPFS on firstname.lastname@example.org or 0117 966 5699.