Offshore Investing: Legitimate, Tax-Efficient and Accessible for Doctors

Offshore investing attracts high profile attention when very rich individuals hold their money in complicated schemes based on paradise islands, on the border of legality.  However, the truth about offshore investing is much more mundane.  Holding money offshore is a common practice and perfectly legitimate.  For a UK investor ‘offshore’ is simply anywhere outside of the UK.  If you hold funds in an ISA or pension some of your money might already be in offshore investments, for example if the funds invest in foreign companies or British companies registered abroad.

The potential tax benefit s of offshore investments are due to offshore investments being subject to the tax rules of their own jurisdiction rather than UK tax rules.  However, as a UK taxpayer you are still liable for tax on income and gains arising on investments held anywhere in the world.  So even though offshore funds don’t have UK tax deducted automatically like UK-based funds, as a UK investor you still have to declare the income and gains and pay UK tax on these.   

UK investors can, however, benefit from UK-tax free income and growth by holding their funds in an offshore bond.  This is a type of investment account where, instead of the funds being held in your own name, they are held in a life company account on your behalf.  Life companies are household names such as Legal & General and Prudential.  Many life companies have an offshore office, typically in Dublin or the Isle of Man, from where they administer the accounts.  As the life company office is outside of the UK they do not pay UK tax on the funds, so income and growth rolls-up within the account tax-free.

An offshore bond is a longstanding, legal way of investing tax-efficiently, like an ISA or pension.  The investment returns are eventually taxable when you withdraw them from the bond, but you benefit from tax-free growth in the meantime and it is possible to time withdrawals, which are subject to income tax on any gain, to manage your tax liability.  For example you could choose to make a withdrawal in a year where you have little income from other sources to avoid a large income tax bill.  Or alternatively segments can be assigned to a spouse or partner to encash if their rate of tax would be lower, or where the money is to be used for the benefit of children (e.g. for school fees) segments can be gifted to the child to encash, who may pay little or no tax.

Offshore bonds are harder to understand than ISAs, but are hardly less accessible as some providers accept investments starting from £20,000.  They are therefore something to consider for doctors who are looking for tax-efficient options beyond ISAs.  We recommend getting financial advice as the value of tax benefits depends on individual circumstances.  Please note this article does not constitute personal financial advice and also that tax rules are subject to change by the government.  Please contact Richard Higgs CFP FPFS on 0117 966 5699 or for personalised advice.

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