November 19, 2025 • 20 mins
Curious about how offshore bonds really work, and whether they’re worth it? In this week’s Merryn Talks Your Money, Merryn Somerset Webb sits down with veteran financial adviser Paula Steele, director at John Lamb Hill Oldridge, to unpack the truth behind this often-misunderstood investment wrapper. From hidden tax traps to smart long-term planning strategies, this episode will inform how you think about where (and how) to grow your wealth.
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio News. Welcome to Meron Talks
Your Money, the personal finance edition of Merin Talk's Money.
In these weekly podcasts, we talk about the best strategies
(00:25):
for making the most of your money. I'm Merrior in
some Stweb now. This week I want to talk about
off shore bonds. As we inch closer and closer to
budget day and the talk of increased taxation grows ever louder,
so does the talk of leaving the UK altogether, and
(00:46):
so does the conversation about how if you're going to
stay in the UK you can cut your tax bill. Now,
one thing that comes up over and over again is
off shore bonds. So what are they to help me
with that? I have Poor the Steel, director of John
Lamb Hill old Bridge. She joins me here in the
studio today. John them Hill Oldbridge is a specialist protection
assurance advisor. We're going to ask her to explain that
(01:08):
before we get going, and Paula specifically has worked in
financial services for over forty years, currently focus on life
insurance and later life planning for her clients. Paula, thank
you so much for joining us today. It's a pleasure Paula,
can we just start with that specialist protection assurance advisor.
Speaker 2 (01:24):
We advise clients on buying life insurance, and we're specialists
because we deal with very, very high value life insurance.
For people who are looking to buy almost exclusively for
inheritance tax planning, they're buying life insurance because they need
to be able to manage the cash flow for paying
(01:45):
the tax. The life insurance isn't a way of avoiding
the tax. It just gives you the cash flow. So
if you've got a ten million liability, you know you've
got a liability, you don't know when that liability is
going to hit, and you move the risk from your
estate across into the insurance market. So that's what we do.
Speaker 1 (02:04):
I see. Yeah, we could lose out of course, under
the circumstances if you lived very significantly longer than you
expected to.
Speaker 2 (02:10):
Well that's the subject of risk. You can buy a
life insurance policy that will pay out when you die,
regardless of that. Some of the clients by a shorter term.
Speaker 1 (02:20):
So we're going to come back to this, actually not
on this podcast, but this is another thing that I've
actually had on our list. Managing your HD liabilities with
life insurance. So hold on listeners. We're going to come
back to this another day, hopefully with Paula. So let's
start on today's actual topic. What is an offshore bond?
What are we actually talking about here?
Speaker 2 (02:40):
An offs your bond is a life insurance policy with
effectively either one hundred pounds or one thousand pounds of
actual life insurance risk insurance, and the rest is a
holding structure for holding investments.
Speaker 1 (02:57):
Okay, so it's basically it's a tax wrapper and the
same way as an iSER and a pension.
Speaker 2 (03:03):
It's exactly the same as a wrapper, and if you
compare it with an iSER or with a pension, all
of them give you the ability to accumulate funds with
no income tax, no capital gains tax. Internally, the pension
currently works for inheritance tax, but won't from April twenty seven,
(03:24):
So from April twenty seven, they will all be exactly
the same in terms of allowing you to roll up
income and capital gain without tax. The difference is that
when you take the money out of the iSER to
which you are restricted at the moment to paying twenty
thousand a year, you are not going to have to
pay tax to get it out. Similarly, if you put
(03:47):
money into a pension, you're getting tax relief on the
way in which you don't get if it's an iSER,
and you don't get if it's an offshore bond. And
when you take the money out of a pension fund,
apart from the tax tax free cash, you are paying
income tax. And it's exactly the same with an offshore bond.
So all of the gain is going to be subject
(04:08):
to income tax, as it is in a pension. So
you've got your three main wrappers ISA, which is probably
the most effective pension, very effective because of the tax
relief and the twenty five percent tax free cash, and
finally the offshore bond.
Speaker 1 (04:23):
So with the offshore bond, the money that goes in
is already taxed and the money that comes out the
other end is already taxed. So the only bit that
is tax free is the accumulation while it is inside
the wrapper exactly okay. And then it has this sort
of rather interesting thing whereby you're allowed to take five
(04:45):
percent of the amount you originally put in out every year.
Speaker 2 (04:50):
You are, but that's on a tax deferred basis. Everybody
says it's a tax free five percent it's not. You
can take out five percent without triggering some kind of
tax in terms of the returns that you've got, and
it's up to five percent, so it's really just a
return of your own capital that's coming back to you
(05:12):
without tax.
Speaker 1 (05:13):
Okay. That's the interesting bit because people constantly say, oh,
this is so amazing you can take out five percent
a year, to which I go, well, that's the money
you put in in the first place. So this doesn't
seem particularly marvelous. You can take out your own money
on which you already paid tax without paying any more tax.
It seems not particularly exciting.
Speaker 2 (05:33):
No, it's the returns which are tax free, and they're not.
Speaker 1 (05:36):
They're tax deferred exactly. And so you can do this
for twenty years. You can take out five percent every
year for twenty.
Speaker 2 (05:43):
Years, or four percent for twenty five years.
Speaker 1 (05:45):
Yes, okay, but effectively you can get all your original
capital back.
Speaker 2 (05:50):
Yes, you can get all your original capital back at
any time. The question is where what your tax implications
are of getting it back if you take out more
than the five percent. Because you take out more than
the five percent, you're going to have to pay tax
on the gain.
Speaker 1 (06:05):
Yeah, So say for example that I put one hundred
thousand pounds into an austure bond, and three weeks later
I suddenly needed that money back. I would effectively end
up paying my marginal rate of income tax to get
my own capital back. Is that fair?
Speaker 2 (06:25):
Only on the gain? You would pay it on the gain.
So if you put one hundred thousand in and it
came out at one hundred and one thousand three weeks later,
the one hundred thousand would be tax free and the
one thousand pounds. But if you're going to take it
all out like that and the one thousand pounds would
be subject to income tax at your marginal rate.
Speaker 1 (06:43):
All right, Well, if you can, I think I'm just
not understanding this. If you can always at any time
withdraw your original capital, why do people talk about how
you can take out five percent of your own capital. Yeah, surely,
then you can take out one hundred percent of your
own capital.
Speaker 2 (06:59):
Every you can take out one hundred percent of your
own capital, but you've got tax implications. The five percent
comes back without any tax implications because you're just deferring
the gain, because the fact the five percent that you
get out would normally be partly income and part partly
gain and income and partly your original capital.
Speaker 1 (07:19):
Okay, so you can you leave the gain inside.
Speaker 2 (07:23):
You can leave the gain inside. If you take out
more than the five percent accumulated, then you're having to
pay tax on the element of the gain. And there
are two ways that that gets taxed. And that's where
people need advice because you can find that you get
a horrific tax charge if it's not properly handled. Why
(07:47):
because if you take out more than the five percent accumulated,
they will treat the balance unless you're taking it out
as a segment, they will treat the balance all as gain.
Speaker 1 (07:59):
I see.
Speaker 2 (08:00):
Any provider will be able to provide you with an
illustration showing how you can get money out with the
minimum level of tax. But if you're taking more than
five percent, you're going to have to pay on the
capital gain. Okay, I see, And the income that's been accumulated.
Speaker 1 (08:18):
Right, And do you pay that at the rate of
capital gains and the rate of dividend dividend pay as
income tax that's treated as income tax. This can be
really dangerous.
Speaker 2 (08:30):
Yes, And you have the advantage if you are already
a forty five percent taxpayer, then you are going to
pay forty five percent on the gain. If you are
not a forty five percent tax payer, you benefit from
something called top slicing relief. What that enables you to
do is to take the gain that's going to be
(08:50):
taxable divided by the number of years that you've held
the product. So let's say that we'd made a forty
some pound gain and we'd held it for ten years.
We would divide the gain forty thousand by the ten years,
and we would add the four thousand pounds to our
income for that year.
Speaker 1 (09:12):
If that then moved you.
Speaker 2 (09:13):
From say twenty to forty percent, you would have to
pay forty percent on the whole of the gain. But
if it leaves you still in the twenty percent, you're
only paying twenty percent. So there are ways to reduce
the amount of tax by taking it, maybe splitting it
over two particular tax years, and understanding how top slicing works.
Speaker 1 (09:48):
Is there a limit to how much you can put
inside and off your bond wrapper and are the fees
on them generally of a higher level than you might
expect to pay on and ordinary stocks and shares ISO
wrapper for example.
Speaker 2 (10:03):
Yes, you should be able to buy a stocks and
shares ISO wrapper for almost no fees. The amount of
fees that you're paying. You need to determine what are
your investment fees and what are your rapper fees. The
rapper fees are very dependent on the amount of money
(10:23):
that's going to be invested. So at one hundred thousand,
you're probably looking at about fifty basis points half of
one percent a year for the rapper. When you get
up to say ten million, then you're going to be
down at about fifteen basis points. Okay, so the rapper
(10:46):
itself is not very expensive. If you do some projections
forward and say am I better off having a direct investment?
Or am I better off? You're always better off in
an iSER, Am I better off in a direct investment
or holding it to an offshore bond? Taking into account
the fees, then you should find that from about year
(11:11):
five you're better off net of tax in the offshore
bond rapper a net of all the fees. Now, it's
slightly dependent on what somebody charges you to get into it,
because you're going to pay partly for the rapper and
partly for the advice.
Speaker 1 (11:26):
Okay, And inside the wrapper, when you speak when you
talk about a direct investment, etc. What do people normally
put inside their offshore bond bearing in mind that is
a rapper. Is this something that people normally use for
just an ordinary we might think of as a straightforward
equity bond portfolio or is it somewhere with people wrap
up property or what's going on inside these wrappers?
Speaker 2 (11:48):
Personally m M. It should only ever be used for
equity and bond portfolios. There was a point where somebody
was running some kind of you could put some kind
of property in it. I think the general consensus is
that that doesn't work. There is an issue if clients
want to hold direct equities, because if they hold direct equities,
(12:11):
they have to be held to a discretionary fund manager
on a standardized portfolio. Otherwise the portfolio runs the bond,
and this is perhaps one of the biggest risks. The
bond falls into what's known as the PPB rules, which
is the highly personalized bond rules, which gives you a
(12:33):
fifteen percent tax charge on the whole thing every year, unrecoverable.
So if you're holding direct equities, they're going to have
to be held with a discretionary file manager. If you're
happy to hold funds, then you can diy it yourself
or you don't have to have a discretionary firm manager.
Speaker 1 (12:53):
Okay, so you can get your wrapper by a couple
of ets. Chuck im in. Bring the cost to the
whole thing down, you can all right, I think I'm
on top of this now. But as far as I
can see, then this is something you would in touch
with a barge poll until you'd absolutely used up all
your allowances and your other rappers, so until your SIP
was pretty full and you used your ice for alliance
(13:14):
every year, etc. This is very much the last choice
of rapper.
Speaker 2 (13:17):
I think it's the last choice of rapper if you're
going to hold it in the very long term because
the pension wrapper, because of the effective gearing, the leverage
of the tax relief the pension rap because at the
end of the day, you are going to pay income
tax on all on seventy five percent of the pension
fund when you get it out.
Speaker 1 (13:39):
Yeah.
Speaker 2 (13:40):
So, but on the other hand, you are getting tax
relief on the way in if you are going to
leave the UK. One of the attractions of offshore bonds
is that if you leave the UK, and let's say
that you go to Dubai, where a lot of people
are going at the moment, you will be able to
(14:00):
surrender it with no tax charge. Now, if you come
back within five years, then there'll be a catch up
on you. But let us say that you had a bond,
you'd put one hundred thousand pounds in it, it's now
worth two hundred thousand. You decide that you're going to
move to Dubai, you will be able to take all
of that out. Better to wait till the following tax
(14:23):
here with no tax because there's no tax to pay
in Dubai. But if you then come back within the
five years, there'd be a catch up tax charge.
Speaker 1 (14:30):
This is like those lovely days when you could move
to Portugal and take everything out of your pension entirely
tax free. Don't think you can do that anymore? Can you?
Speaker 2 (14:38):
Depends on the double tax agreement. So if you go
to somewhere like Cyprus, you can take it out tax
free because it's pension arrangements. If you are in a
receipt of a state pension. If you go to Malta,
I think there's a flat rate of tax. If you
go to Italy, it depends if you're on the flat
rate or if you've gone into the seven percent rate.
(14:59):
So but it will depend on whether the double tax
Agreement says that pensions are to be taxed where you're
going to or where you currently are, and that's dependent
on the agreement.
Speaker 1 (15:12):
Okay, there's another podcast in that Apollo. I feel like
we're going to be hearing quite a lot from you
over the next few months.
Speaker 2 (15:18):
Have you delighted?
Speaker 1 (15:19):
Wonderful? Can I end on the question about who shouldn't
have an offshore bond? Because you know, watching this as
I have for many decades now, I see an awful
lot of articles and suggestions online that people who I'm
not sure should have off shore bonds should look at them.
Who shouldn't have one?
Speaker 2 (15:38):
If you are going to need a large amount of
capital suddenly now nobody knows what's going to happen going forward.
It should be money that is going to be invested
in the long term because you can buy these on
shore as well. I think that they are more sophisticated
as tax rappers than sometimes people think. Within the John
(15:59):
Amhill Audridge business, we are a specialist provider in that
we don't have an investment proposition. Most of these bonds
are being sold by people who are wrapping up an
existing portfolio or want to wrap a portfolio going forward,
but they want the investment management. And I think it's
(16:19):
very much dependent on what people want to do. Is
the additional cost worth it for them? And are you
trying to do a wrapper or that, because sometimes, particularly
in the UK market, they would be sold with a
discounted gift scheme attached to it, or with a gift
and loan scheme which makes them inheritance tax effective, because
(16:42):
as they stand alone, they are not inheritance tax effective.
The asset stays in your state.
Speaker 1 (16:48):
Okay, explain the gift and loan scheme a little further.
Speaker 2 (16:53):
Let's say that I want one hundred thousand pounds. I
would quite like it to go to my kids, but
on the other hand, I sort of would quite like
to keep it.
Speaker 1 (17:03):
So I think a lot of people feel exactly like that, but.
Speaker 2 (17:09):
I don't think I really need any gain. So what
a gift and loan scheme does is it says I'm
going to set up a trust, I'm going to lend
the trustees one hundred thousand pounds and they're going to
pay me back five percent a year, but all of
the gain is going to be for the benefit of
my kids. So it's very long term planning because it's
(17:31):
going to take twenty years for it to get out
of your estate. But if you've got clients in their
sixty seventies, for whom they haven't really got surplus capital,
but they don't feel that they're going to need it,
it's a good way to hold on to assets, continue
to take something out of it, but give the future
(17:51):
gain away.
Speaker 1 (17:53):
Okay, what do you think the political risk is here?
I mean these kinds of products. If if you were
a politician and your brief was to take care of
ordinary people, you might look at the ISA wrapper, which
may be change in the budget, and at the SIP
rapper and say, well, you know, that's good enough for
most people. Why on earth do we have available the
(18:14):
third rapper that allows Really from our conversation, I think
we can both agree that it's maybe not your billionaires,
but it's certainly the very very comfortable who would use
a product like this. Surely there must be political risk
around this kind of rapper. I mean I can already
film myself coming over all reefs and saying, well, that's
it away with that one.
Speaker 2 (18:35):
I think that we are no longer in Europe. It
is the holding mechanism of choice in Europe. So they
would need to say they're going to change the taxation
of life insurance policies. Okay, I'm sort of weird in
that I've been in the same job for over forty years.
It's quite a long time, really, But when I started,
(18:59):
our clients for paying ninety eight percent tax, they paid
eighty three percent income tax, fifteen percent investment income sur charge,
and lots and lots of money went into offshore bonds
and on shore bonds. There's a very, very long track
record of them being there. In theory, the government will
get more tax because you're going to pay income tax
(19:22):
rather than capital gains tax. So if you look at
the way that they project forward, they would be saying, well,
it actually we'll get more tax than we would if
they held the item in. But on the other hand,
we're in a different political world today and everything has
political risk. Yeah, I think probably i'd wait if I
(19:42):
was going to think about an investment at the moment,
I'd wait till after the budget.
Speaker 1 (19:46):
Yes, well, you're not to learn that everybody's waiting for
everything until after the budget. Why we are where we are, brilliant,
well fulla Thank you so much for joining us today
and I hope that we will be hearing from you again.
Speaker 2 (20:00):
It's been my pleasure. I've been delighted.
Speaker 1 (20:13):
Thanks for listening for this week's Maren Talk to Your Money.
If you like our show, right review and subscribe wherever
you listen to podcasts. Also be sure to follow me
in John on exceor Twitter at mariners w and John
Underscore Stepic. This episode was produced by Someersidian Moses and
sound designed by Blake Maples and Aaron Casper. Questions and
comments on this show and all our shows are always welcome.
(20:33):
Our show email is Merrin Money at Bloomberg dot net
Bloomberg Audio Studios, Podcasts, radio News. Welcome to Meron Talks
Your Money, the personal finance edition of Merin Talk's Money.
In these weekly podcasts, we talk about the best strategies
(00:25):
for making the most of your money. I'm Merrior in
some Stweb now. This week I want to talk about
off shore bonds. As we inch closer and closer to
budget day and the talk of increased taxation grows ever louder,
so does the talk of leaving the UK altogether, and
(00:46):
so does the conversation about how if you're going to
stay in the UK you can cut your tax bill. Now,
one thing that comes up over and over again is
off shore bonds. So what are they to help me
with that? I have Poor the Steel, director of John
Lamb Hill old Bridge. She joins me here in the
studio today. John them Hill Oldbridge is a specialist protection
assurance advisor. We're going to ask her to explain that
(01:08):
before we get going, and Paula specifically has worked in
financial services for over forty years, currently focus on life
insurance and later life planning for her clients. Paula, thank
you so much for joining us today. It's a pleasure Paula,
can we just start with that specialist protection assurance advisor.
Speaker 2 (01:24):
We advise clients on buying life insurance, and we're specialists
because we deal with very, very high value life insurance.
For people who are looking to buy almost exclusively for
inheritance tax planning, they're buying life insurance because they need
to be able to manage the cash flow for paying
(01:45):
the tax. The life insurance isn't a way of avoiding
the tax. It just gives you the cash flow. So
if you've got a ten million liability, you know you've
got a liability, you don't know when that liability is
going to hit, and you move the risk from your
estate across into the insurance market. So that's what we do.
Speaker 1 (02:04):
I see. Yeah, we could lose out of course, under
the circumstances if you lived very significantly longer than you
expected to.
Speaker 2 (02:10):
Well that's the subject of risk. You can buy a
life insurance policy that will pay out when you die,
regardless of that. Some of the clients by a shorter term.
Speaker 1 (02:20):
So we're going to come back to this, actually not
on this podcast, but this is another thing that I've
actually had on our list. Managing your HD liabilities with
life insurance. So hold on listeners. We're going to come
back to this another day, hopefully with Paula. So let's
start on today's actual topic. What is an offshore bond?
What are we actually talking about here?
Speaker 2 (02:40):
An offs your bond is a life insurance policy with
effectively either one hundred pounds or one thousand pounds of
actual life insurance risk insurance, and the rest is a
holding structure for holding investments.
Speaker 1 (02:57):
Okay, so it's basically it's a tax wrapper and the
same way as an iSER and a pension.
Speaker 2 (03:03):
It's exactly the same as a wrapper, and if you
compare it with an iSER or with a pension, all
of them give you the ability to accumulate funds with
no income tax, no capital gains tax. Internally, the pension
currently works for inheritance tax, but won't from April twenty seven,
(03:24):
So from April twenty seven, they will all be exactly
the same in terms of allowing you to roll up
income and capital gain without tax. The difference is that
when you take the money out of the iSER to
which you are restricted at the moment to paying twenty
thousand a year, you are not going to have to
pay tax to get it out. Similarly, if you put
(03:47):
money into a pension, you're getting tax relief on the
way in which you don't get if it's an iSER,
and you don't get if it's an offshore bond. And
when you take the money out of a pension fund,
apart from the tax tax free cash, you are paying
income tax. And it's exactly the same with an offshore bond.
So all of the gain is going to be subject
(04:08):
to income tax, as it is in a pension. So
you've got your three main wrappers ISA, which is probably
the most effective pension, very effective because of the tax
relief and the twenty five percent tax free cash, and
finally the offshore bond.
Speaker 1 (04:23):
So with the offshore bond, the money that goes in
is already taxed and the money that comes out the
other end is already taxed. So the only bit that
is tax free is the accumulation while it is inside
the wrapper exactly okay. And then it has this sort
of rather interesting thing whereby you're allowed to take five
(04:45):
percent of the amount you originally put in out every year.
Speaker 2 (04:50):
You are, but that's on a tax deferred basis. Everybody
says it's a tax free five percent it's not. You
can take out five percent without triggering some kind of
tax in terms of the returns that you've got, and
it's up to five percent, so it's really just a
return of your own capital that's coming back to you
(05:12):
without tax.
Speaker 1 (05:13):
Okay. That's the interesting bit because people constantly say, oh,
this is so amazing you can take out five percent
a year, to which I go, well, that's the money
you put in in the first place. So this doesn't
seem particularly marvelous. You can take out your own money
on which you already paid tax without paying any more tax.
It seems not particularly exciting.
Speaker 2 (05:33):
No, it's the returns which are tax free, and they're not.
Speaker 1 (05:36):
They're tax deferred exactly. And so you can do this
for twenty years. You can take out five percent every
year for twenty.
Speaker 2 (05:43):
Years, or four percent for twenty five years.
Speaker 1 (05:45):
Yes, okay, but effectively you can get all your original
capital back.
Speaker 2 (05:50):
Yes, you can get all your original capital back at
any time. The question is where what your tax implications
are of getting it back if you take out more
than the five percent. Because you take out more than
the five percent, you're going to have to pay tax
on the gain.
Speaker 1 (06:05):
Yeah, So say for example that I put one hundred
thousand pounds into an austure bond, and three weeks later
I suddenly needed that money back. I would effectively end
up paying my marginal rate of income tax to get
my own capital back. Is that fair?
Speaker 2 (06:25):
Only on the gain? You would pay it on the gain.
So if you put one hundred thousand in and it
came out at one hundred and one thousand three weeks later,
the one hundred thousand would be tax free and the
one thousand pounds. But if you're going to take it
all out like that and the one thousand pounds would
be subject to income tax at your marginal rate.
Speaker 1 (06:43):
All right, Well, if you can, I think I'm just
not understanding this. If you can always at any time
withdraw your original capital, why do people talk about how
you can take out five percent of your own capital. Yeah, surely,
then you can take out one hundred percent of your
own capital.
Speaker 2 (06:59):
Every you can take out one hundred percent of your
own capital, but you've got tax implications. The five percent
comes back without any tax implications because you're just deferring
the gain, because the fact the five percent that you
get out would normally be partly income and part partly
gain and income and partly your original capital.
Speaker 1 (07:19):
Okay, so you can you leave the gain inside.
Speaker 2 (07:23):
You can leave the gain inside. If you take out
more than the five percent accumulated, then you're having to
pay tax on the element of the gain. And there
are two ways that that gets taxed. And that's where
people need advice because you can find that you get
a horrific tax charge if it's not properly handled. Why
(07:47):
because if you take out more than the five percent accumulated,
they will treat the balance unless you're taking it out
as a segment, they will treat the balance all as gain.
Speaker 1 (07:59):
I see.
Speaker 2 (08:00):
Any provider will be able to provide you with an
illustration showing how you can get money out with the
minimum level of tax. But if you're taking more than
five percent, you're going to have to pay on the
capital gain. Okay, I see, And the income that's been accumulated.
Speaker 1 (08:18):
Right, And do you pay that at the rate of
capital gains and the rate of dividend dividend pay as
income tax that's treated as income tax. This can be
really dangerous.
Speaker 2 (08:30):
Yes, And you have the advantage if you are already
a forty five percent taxpayer, then you are going to
pay forty five percent on the gain. If you are
not a forty five percent tax payer, you benefit from
something called top slicing relief. What that enables you to
do is to take the gain that's going to be
(08:50):
taxable divided by the number of years that you've held
the product. So let's say that we'd made a forty
some pound gain and we'd held it for ten years.
We would divide the gain forty thousand by the ten years,
and we would add the four thousand pounds to our
income for that year.
Speaker 1 (09:12):
If that then moved you.
Speaker 2 (09:13):
From say twenty to forty percent, you would have to
pay forty percent on the whole of the gain. But
if it leaves you still in the twenty percent, you're
only paying twenty percent. So there are ways to reduce
the amount of tax by taking it, maybe splitting it
over two particular tax years, and understanding how top slicing works.
Speaker 1 (09:48):
Is there a limit to how much you can put
inside and off your bond wrapper and are the fees
on them generally of a higher level than you might
expect to pay on and ordinary stocks and shares ISO
wrapper for example.
Speaker 2 (10:03):
Yes, you should be able to buy a stocks and
shares ISO wrapper for almost no fees. The amount of
fees that you're paying. You need to determine what are
your investment fees and what are your rapper fees. The
rapper fees are very dependent on the amount of money
(10:23):
that's going to be invested. So at one hundred thousand,
you're probably looking at about fifty basis points half of
one percent a year for the rapper. When you get
up to say ten million, then you're going to be
down at about fifteen basis points. Okay, so the rapper
(10:46):
itself is not very expensive. If you do some projections
forward and say am I better off having a direct investment?
Or am I better off? You're always better off in
an iSER, Am I better off in a direct investment
or holding it to an offshore bond? Taking into account
the fees, then you should find that from about year
(11:11):
five you're better off net of tax in the offshore
bond rapper a net of all the fees. Now, it's
slightly dependent on what somebody charges you to get into it,
because you're going to pay partly for the rapper and
partly for the advice.
Speaker 1 (11:26):
Okay, And inside the wrapper, when you speak when you
talk about a direct investment, etc. What do people normally
put inside their offshore bond bearing in mind that is
a rapper. Is this something that people normally use for
just an ordinary we might think of as a straightforward
equity bond portfolio or is it somewhere with people wrap
up property or what's going on inside these wrappers?
Speaker 2 (11:48):
Personally m M. It should only ever be used for
equity and bond portfolios. There was a point where somebody
was running some kind of you could put some kind
of property in it. I think the general consensus is
that that doesn't work. There is an issue if clients
want to hold direct equities, because if they hold direct equities,
(12:11):
they have to be held to a discretionary fund manager
on a standardized portfolio. Otherwise the portfolio runs the bond,
and this is perhaps one of the biggest risks. The
bond falls into what's known as the PPB rules, which
is the highly personalized bond rules, which gives you a
(12:33):
fifteen percent tax charge on the whole thing every year, unrecoverable.
So if you're holding direct equities, they're going to have
to be held with a discretionary file manager. If you're
happy to hold funds, then you can diy it yourself
or you don't have to have a discretionary firm manager.
Speaker 1 (12:53):
Okay, so you can get your wrapper by a couple
of ets. Chuck im in. Bring the cost to the
whole thing down, you can all right, I think I'm
on top of this now. But as far as I
can see, then this is something you would in touch
with a barge poll until you'd absolutely used up all
your allowances and your other rappers, so until your SIP
was pretty full and you used your ice for alliance
(13:14):
every year, etc. This is very much the last choice
of rapper.
Speaker 2 (13:17):
I think it's the last choice of rapper if you're
going to hold it in the very long term because
the pension wrapper, because of the effective gearing, the leverage
of the tax relief the pension rap because at the
end of the day, you are going to pay income
tax on all on seventy five percent of the pension
fund when you get it out.
Speaker 1 (13:39):
Yeah.
Speaker 2 (13:40):
So, but on the other hand, you are getting tax
relief on the way in if you are going to
leave the UK. One of the attractions of offshore bonds
is that if you leave the UK, and let's say
that you go to Dubai, where a lot of people
are going at the moment, you will be able to
(14:00):
surrender it with no tax charge. Now, if you come
back within five years, then there'll be a catch up
on you. But let us say that you had a bond,
you'd put one hundred thousand pounds in it, it's now
worth two hundred thousand. You decide that you're going to
move to Dubai, you will be able to take all
of that out. Better to wait till the following tax
(14:23):
here with no tax because there's no tax to pay
in Dubai. But if you then come back within the
five years, there'd be a catch up tax charge.
Speaker 1 (14:30):
This is like those lovely days when you could move
to Portugal and take everything out of your pension entirely
tax free. Don't think you can do that anymore? Can you?
Speaker 2 (14:38):
Depends on the double tax agreement. So if you go
to somewhere like Cyprus, you can take it out tax
free because it's pension arrangements. If you are in a
receipt of a state pension. If you go to Malta,
I think there's a flat rate of tax. If you
go to Italy, it depends if you're on the flat
rate or if you've gone into the seven percent rate.
(14:59):
So but it will depend on whether the double tax
Agreement says that pensions are to be taxed where you're
going to or where you currently are, and that's dependent
on the agreement.
Speaker 1 (15:12):
Okay, there's another podcast in that Apollo. I feel like
we're going to be hearing quite a lot from you
over the next few months.
Speaker 2 (15:18):
Have you delighted?
Speaker 1 (15:19):
Wonderful? Can I end on the question about who shouldn't
have an offshore bond? Because you know, watching this as
I have for many decades now, I see an awful
lot of articles and suggestions online that people who I'm
not sure should have off shore bonds should look at them.
Who shouldn't have one?
Speaker 2 (15:38):
If you are going to need a large amount of
capital suddenly now nobody knows what's going to happen going forward.
It should be money that is going to be invested
in the long term because you can buy these on
shore as well. I think that they are more sophisticated
as tax rappers than sometimes people think. Within the John
(15:59):
Amhill Audridge business, we are a specialist provider in that
we don't have an investment proposition. Most of these bonds
are being sold by people who are wrapping up an
existing portfolio or want to wrap a portfolio going forward,
but they want the investment management. And I think it's
(16:19):
very much dependent on what people want to do. Is
the additional cost worth it for them? And are you
trying to do a wrapper or that, because sometimes, particularly
in the UK market, they would be sold with a
discounted gift scheme attached to it, or with a gift
and loan scheme which makes them inheritance tax effective, because
(16:42):
as they stand alone, they are not inheritance tax effective.
The asset stays in your state.
Speaker 1 (16:48):
Okay, explain the gift and loan scheme a little further.
Speaker 2 (16:53):
Let's say that I want one hundred thousand pounds. I
would quite like it to go to my kids, but
on the other hand, I sort of would quite like
to keep it.
Speaker 1 (17:03):
So I think a lot of people feel exactly like that, but.
Speaker 2 (17:09):
I don't think I really need any gain. So what
a gift and loan scheme does is it says I'm
going to set up a trust, I'm going to lend
the trustees one hundred thousand pounds and they're going to
pay me back five percent a year, but all of
the gain is going to be for the benefit of
my kids. So it's very long term planning because it's
(17:31):
going to take twenty years for it to get out
of your estate. But if you've got clients in their
sixty seventies, for whom they haven't really got surplus capital,
but they don't feel that they're going to need it,
it's a good way to hold on to assets, continue
to take something out of it, but give the future
(17:51):
gain away.
Speaker 1 (17:53):
Okay, what do you think the political risk is here?
I mean these kinds of products. If if you were
a politician and your brief was to take care of
ordinary people, you might look at the ISA wrapper, which
may be change in the budget, and at the SIP
rapper and say, well, you know, that's good enough for
most people. Why on earth do we have available the
(18:14):
third rapper that allows Really from our conversation, I think
we can both agree that it's maybe not your billionaires,
but it's certainly the very very comfortable who would use
a product like this. Surely there must be political risk
around this kind of rapper. I mean I can already
film myself coming over all reefs and saying, well, that's
it away with that one.
Speaker 2 (18:35):
I think that we are no longer in Europe. It
is the holding mechanism of choice in Europe. So they
would need to say they're going to change the taxation
of life insurance policies. Okay, I'm sort of weird in
that I've been in the same job for over forty years.
It's quite a long time, really, But when I started,
(18:59):
our clients for paying ninety eight percent tax, they paid
eighty three percent income tax, fifteen percent investment income sur charge,
and lots and lots of money went into offshore bonds
and on shore bonds. There's a very, very long track
record of them being there. In theory, the government will
get more tax because you're going to pay income tax
(19:22):
rather than capital gains tax. So if you look at
the way that they project forward, they would be saying, well,
it actually we'll get more tax than we would if
they held the item in. But on the other hand,
we're in a different political world today and everything has
political risk. Yeah, I think probably i'd wait if I
(19:42):
was going to think about an investment at the moment,
I'd wait till after the budget.
Speaker 1 (19:46):
Yes, well, you're not to learn that everybody's waiting for
everything until after the budget. Why we are where we are, brilliant,
well fulla Thank you so much for joining us today
and I hope that we will be hearing from you again.
Speaker 2 (20:00):
It's been my pleasure. I've been delighted.
Speaker 1 (20:13):
Thanks for listening for this week's Maren Talk to Your Money.
If you like our show, right review and subscribe wherever
you listen to podcasts. Also be sure to follow me
in John on exceor Twitter at mariners w and John
Underscore Stepic. This episode was produced by Someersidian Moses and
sound designed by Blake Maples and Aaron Casper. Questions and
comments on this show and all our shows are always welcome.
(20:33):
Our show email is Merrin Money at Bloomberg dot net
Host
Merryn Somerset Webb
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