The Inland Revenue's decision to change the way offshore bonds are taxed makes them more attractive than onshore bonds, says Scottish Life International.
The claim follows the Revenue's disagreement with Eurolife's interpretation of tax rules, requiring tax on high-income bonds be levied on an income tax basis rather than a capital gains tax basis.
Taxing on an income basis means investors will miss out on two CGT advantages – use of indexation relief and the deferring of payment of tax until the maturity of the product –which SLI says would result in a bigger tax bill overall.
Marketing director John Allison says: “Investors in a number of onshore products will be adversely affected if the Revenue succeeds in securing the reinterpretation of the way in which high-income bonds are taxed. This is yet another reason to opt for an offshore rather than an onshore bond.
“If the Inland Revenue succeeds someone will have to pay. The company will have to either take the tax hit or pass the cost on to the investors.”
Last month, Eurolife had to slash its payouts on high-income bonds when the FSA told it to set aside additional reserves in case the Revenue's decision is not overturned.
Jackson Batten Financial Group managing director Robert Rackliffe says: “If you are a non-UK resident for tax, then investing offshore would be good if you are looking for capital growth but not if you are looking for income. If you are susceptible to UK income tax then it will not make a huge difference in the long run.”