Global Investments
International Limited

TAX EFFICIENT INVESTMENT

It is widely understood that investing offshore has important tax advantages for the international investor. centers such as the Isle of Man and the Channel Islands do not tax investment gains for non-residents of those territories.

For the UK expatriate, the news get better.

Many British people hold their investments in various types of mutual funds. Such funds offer the advantages of professional management and diversification, but many suffer from one drawback: Tax, non-distributor or roll-up funds are taxed as income in the tax year in which they are encashed. Of particular significance to the expatriate is the fact that there is no credit given for time spent abroad.

Compare this with investment via a portfolio bond. An offshore bond is simply an investment vehicle, which allows for investment into exactly the same funds but with a significant tax concession. If the investor is UK resident upon encashment, the gains are still subject to income tax, but with full credit given for the time spent as a non-resident. Consider the following example.

Mr. Smith invests £ 50,000 into a roll-up fund. Eight years later he returns to the UK and holds on to his investment for a further four years. Over the twelve-year period, his investment has grown by around 8% per annum to £ 125,000. He is a high rate taxpayer, so his tax charge upon encashment is:

£ 125,000 - £ 50,000 = Gain of £ 75,000
£ 75,000 x 40% = Tax charge of £ 30,000

If, however, Mr. Smith had invested in exactly the same fund, but through a portfolio bond, the gains would have been subject to time apportionment, giving him the benefit of full credit for his years spent working abroad. In this case, the tax calculation would have been:

£ 125,000 - £ 50,000 = Gain of £ 75,000
Time apportionment of eight years out of 12 = 67%
£ 75,000 x 40% less 67% = Tax charge of £ 10,000
Saving in tax charge £ 20,000

Offshore bonds offer the investor many advantages, such as institutional investment discounts and multiple investments within a single account. For the UK investor, the significant tax savings make the case for these products overwhelming.