Offshore Tax Planning for High Earning Insurance & Reinsurance Executives (Approved by HMRC) [INFOGRAPHIC]
Offshore tax planning could help high earners legitimately protect their capital from the taxman in a number of ways.
If you’re earning over £100,000 a year, high tax rates are a major drain on your resources. Offshore investment - investing in an offshore tax structure, known as an investment bond, domiciled in a different country - is a highly effective way of reducing many different tax liabilities.
By offshore, we don’t mean far flung tax havens like the Cayman Islands, but more prosaic tax efficient centres like Dublin and the Isle of Man. As exotic and scandalous as offshore accounts sound, most providers are household name UK investment and life assurance companies using their offshore subsidiary company. These products are fully HMRC-approved.
As long as there is a life assured on the offshore investment bond you won’t normally pay any tax on growth. Tax is paid when money is taken out of the bond and will be based on your circumstances at that time; for example, you may wish to draw in retirement, when you are no longer a high rate taxpayer.
International bonds have a 5% allowance that you can take out of the offshore investment and pay tax on at a later date. This allowance can be carried forward to a future year if you have not used it.
If no withdrawals are made in the first four years, 25% of the amount invested can be taken in year five without triggering a tax charge.
Nothing to declare
An international bond does not have to be declared on your tax return unless:
You exceed the 5% allowance of the original offshore investment, for each year it’s been running.
You cash the bond in and make a profit.
You sell your bond.
The bond comes to an end because the life assured dies.
Keep it in the family
Careful tax planning meant that 250,278 estates for year of death 2009-10 were fully mitigated against tax. 38,144 of these were for estates worth between £500,000 and £2 million
Source: HMRC, July 2012
Effective offshore tax planning could also help maximise your children’s inheritance. If put in trust, and you live seven years after this, any growth on the investment bond will be immediately outside your estate.
Sources: Prudential Fidelity
Your ‘to do’ list
- Don’t pay tax on growth
- Take 5% a year without being taxed
- Protect your family from inheritance tax.
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© Capital Asset Management 2013