Offshore bonds can be used to shelter non-domiciles’ assets against the tighter rules expected in the March 12 Budget, says Killik & Co.
The current rules state non-doms living in the UK are taxed on their worldwide income on a remittance basis, but after April 6, this looks set to change.
From that date, non-doms resident in the UK for seven of the last nine year will either pay a £30,000 annual levy and continue to be taxed on a remittance basis – i.e. offshore income or gains brought into the UK – or they can be taxed on worldwide income and gains as they arise.
The looming clampdown on offshore trusts could see non-doms switch to offshore bonds, which would allow them to enjoy their current tax treatment – not creating capital gains and only causing taxable income when a chargeable event occurs.
Non-doms could then place overseas assets into an offshore bond and choose to be taxed on worldwide gains and income as they arise – avoiding the £30,000 levy and reducing tax liability.
These assets would also then avoid being subject to UK IHT.
Killik & Co director of financial planning Lee Smythe says: “The beauty of an offshore bond is that tax is payable when it is encashed – making them useful for foreign nationals resident in the UK as well as UK nationals paying 40 per cent tax who can defer payment until they are subject to lower-rate income tax in retirement or until they have moved offshore.
“A further advantage is the opportunity to draw 5 per cent a year income with no immediate tax to pay although anything above that will be deemed a ‘chargeable event’ subject to income tax at the marginal rate of tax.”