Wealthy investors pour record sums into offshore bonds amid rising UK tax burden

"According to data reviewed by the Financial Times, around £10.5 billion was invested in offshore bonds in the 12 months to June, more than double the £5.1 billion recorded the previous year - marking a record-breaking surge in demand for overseas investment wrappers. Financial advisers say the trend reflects the growing unease among higher earners over the UK's increasingly complex tax landscape, with Ireland, Luxembourg, and the Isle of Man emerging as the most popular jurisdictions for new bond purchases."

"The shift comes as the government continues to freeze income tax thresholds and reduce tax-free allowances, pulling more middle and high earners into higher tax bands. At the same time, capital gains tax (CGT) for those in higher and additional rate brackets has risen from 20% to 24%, while the annual CGT exemption has been slashed from £12,300 to just £3,000 over two years. From 2027, some pension pots will also fall within the scope of inheritance tax."

""Some investors may be concerned about potential tax increases in the UK," said Claire Trott, head of retirement and holistic planning at St James's Place. "Offshore bond funds allow tax to be deferred while the investment remains within the bond. For others, it may reflect longer-term plans to relocate overseas." An offshore bond is structured as a life insurance policy that allows investors to roll up investment returns without paying tax until funds are withdrawn. Holders can typically withdraw up to 5% of the original investment each year for 20 years, tax-free."

Investments into offshore bonds surged to around £10.5 billion in the year to June, more than double the prior year, driven by high-net-worth demand for overseas wrappers. Ireland, Luxembourg and the Isle of Man are the most popular jurisdictions for new bond purchases. Government freezes on income tax thresholds, cuts to tax-free allowances and rises in CGT rates and reduced exemptions have pushed more earners into higher tax bands. From 2027 some pension pots will face inheritance tax. Wealth managers report clients seek to defer or mitigate future UK tax liabilities using offshore structures and bonds.

Read at Business Matters