What happens after 20 years with an offshore bond?
Adam Fayed
Managing Director - adamfayed.com - helping expats and high-net-worth individuals
Offshore bonds are investment wrappers used as part of wealth planning strategies.
For UK taxpayers, a 5% tax-deferred withdrawal allowance applies for 20 years. During that time, investors are exempt from immediate tax duties and are permitted to withdraw up to 5% of what they initially invested each year.
It matters to know what becomes of the bonds once that period is over, as the tax benefits could alter for UK residents.
Bond Tax Deferred Allowance
After 20 years, no more allowance is earned if the annual 5% cap for withdrawals has already been reached. After 20 years, withdrawals will result in a chargeable gain.
However, any unused allowance will roll over and accumulate even past 20 years, so long as the bond is held.
If the offshore bond is surrendered or cashed in, it generates a taxable income. The investor's residency will determine how the gains are taxed.
Can you keep the bond?
Yes, the bond is still invested and grows free of taxes even after 20 years.
Withdrawals are still possible, but they are now all subject to full taxation.
To lessen such effect, you can transfer the bond to a family member who is subject to lower taxes before redemption.
What happens when you surrender a bond?
It’s deemed a chargeable event, so taxes owed becomes payable.
Top-slicing relief may trim?tax obligations for UK taxpayers by averaging profits over the bond's duration.
What happens to your bond when you die?
If multiple lives are assured, the bond can continue even if you?pass?away after 20 years.
If beneficiaries fully surrender, gains are taxed according to their individual tax situation.
As part of an estate, an inheritance tax may be assessed on the bond. However, this can be decreased if the bond is kept in, for example, a trust as it allows transfer to beneficiaries without becoming a part of the estate.
If you are looking to invest as an expat or high-net-worth individual, which is what I specialize in, you can email me ([email protected]) or WhatsApp (+44-7393-450-837).
This includes if you are looking for a second opinion or alternative investments.
Some facts might change from the time of writing, and nothing written here is financial, legal, tax, or any other kind of individual advice, or a solicitation to invest.