Tax Saving Potential Through Offshore Bonds for Non-UK Domiciled Individuals

Non-UK domiciled individuals resident in the UK are currently assessable on UK sourced income and foreign income remitted to the UK.

From 6th April 2008 it is proposed that non-UK domiciled individuals who have been resident in the UK for 7 or more years will have to elect to continue with the remittance basis but subject to a fee of £30,000. Those individuals who decide against opting for the remittance basis will be assessed on their worldwide income.

The amount of tax paid can potentially be reduced through the use of an offshore bond.

No Capital Gains Tax (CGT) and potentially no Income Tax

Offshore bonds will appeal to many non-UK domiciled individuals because there is no CGT within the bond and it only gives rise to an Income Tax liability if they take out more than 5% per annum.

This means that non-UK domiciled individuals can put assets in an offshore bond and elect to be taxed on worldwide gains and income as they rise. This will mean that they will avoid paying the £30,000 levy unless they take out more than the 5% per annum.

No liability to UK Inheritance Tax (IHT)

Non-UK domiciled residents living in the UK are subject to IHT on all assets that they hold within the UK. However, by holding assets in an offshore bond they are not considered to be UK assets and therefore IHT is avoided in the event of death whilst living in the UK.

Encash after you leave the UK

When the individual leaves the UK, and provided they are outside the country for a full year, they can cash in the bond and suffer no further UK taxation.

For example: A non-UK domiciled couple living in the UK have £1 million in a Singapore bank account which is not currently subject to UK tax. Unless the funds were brought into the UK that £1 million could now be put into an offshore bond. The couple could draw out 5%, i.e. £50,000 per annum, and on their return to Singapore could cash in the bond without suffering any further UK taxation.

Offshore bonds are very suitable for foreign nationals residing in the UK who can defer encashing the bond until they move offshore.

Read about The Killik & Co Offshore Bond