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Julian Gibbs

Offshore life insurance investment bonds are very similar to those in the UK except for their tax treatment. They do, however, have other advantages as well. According to a Merrill Lynch Gemini survey, high-net-worth investors have over 50 per cent of their assets offshore. This is partly because they can get access to funds and investment instruments that are not available onshore.

One example is the Scottish Life International secure investment portfolio, which is linked to the performance of the world&#39s major stockmarkets and offers access to a range of capital-protected funds.

Investments work harder and more efficiently for investors in a tax-efficient environment. First, they are beyond the Inland Revenue&#39s tax reach so the gains on the underlying investments are not taxed at source and are paid gross to investors. Further, an offshore life policy can provide investors with an annual tax-free income, like other investment bonds, of 5 per cent of the original investment for a maximum of 20 years.

An offshore life policy also diminishes self-assessment administration requirements as there is no requirement to include details of an offshore policy on tax returns, unless it is encashed or an income in excess of 5 per cent is taken in any financial year. While UK investors do have to pay tax on the gains when they encash the bond, investors who plan to live abroad will escape all tax liability.

A particularly important point is that offshore life policies also provide an opportunity to ensure avoidance of inheritance tax. One point of warning is that it is illegal not to report to the Revenue any gains made when you encash the policy or if you withdraw more than 5 per cent from it.

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