The Government has moved to close a loophole which allowed people with offshore bonds who live outside the UK to avoid paying tax on investment gains.
Budget documents published last week contain details of a clampdown on gains arising in offshore bonds for non-domiciled individuals being used to offset gains when they become a chargeable event in the UK.
The tightening of the rules will have an impact on people with offshore bonds who live abroad and who choose to make a withdrawal of more than 5 per cent.
Usually when this happens a chargeable event arises. However, at the moment if the person is living abroad they do not have to pay a tax charge on that chargeable event.
Standard Life head of pensions policy John Lawson says the Government has now put a stop to this practice.
He says: “This is a loophole that people have been using to avoid paying tax.
“Whenever you make a withdrawal of more than 5 per cent, a chargeable event arises which is taxable. But because people have withdrawn money while resident abroad, for example in Hong Kong, there has been no tax charge on that chargeable event.
“You effectively have a chargeable event outside the UK where no tax is payable. So the chargeable event arises outside the UK, you do not pay any tax on it, then you come back to the UK and any residual charge is written off because the previous charge is deducted. This will no longer be possible under the revised rules.”
Informed Choice managing director Martin Bamford says: “I suspect this will have been quite a niche area but it is good that the Government is closing what seems to be a fairly blatant tax avoidance loophole.”