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Offshore investments have advantages both for UK residents and those living and working abroad. Anyone can invest offshore, particularly to take advantage of tax deferral benefits. The most popular offshore investment centres are Jersey, Guernsey, Dublin, and Luxembourg.
Since offshore funds are managed offshore, they can invest in areas forbidden to UK-authorised unit trusts. Such funds can carry various securities, including investment bonds. When bonds are held in the UK, income is paid net of tax. Taxes are deducted before a pay-out. With offshore investment bonds, however, no tax is deducted. This means that income can accumulate over many years, gross, leading to higher rates of return. Taxes need only be paid when the money is brought back into the UK.
Offshore trusts offer a good way to avoid inheritance taxes. Money put into offshore trusts can continue to grow untaxed until one's heir comes of age. Since no taxes are taken out, interest is accumulated on interest, which helps the money grow faster. Once the heir takes possession of the trust, he or she will be liable for taxes at the basic rate unless the heir is considered a higher-rate taxpayer. So long as the person who established the trust has lived seven years since setting up the trust, it will not be liable for inheritance taxes.
Offshore financial centres have varying levels of regulation, supervision, and payment systems. It's important to research them before placing money in their care. Offshore funds also typically have higher charges than do UK funds, so one must make sure to check the small print. Further, since offshore funds are not covered by the UK's financial regulations, customers are not covered by safeguards as they would be when investing domestically.
Use an Independent Financial Adviser
Customers who want to invest offshore should talk to an Independent Financial Adviser to determine if it's the right time in the market, what fees will need to be paid, and so on. UK citizens living and working abroad should consult with an IFA to work out tax implications regarding their new host country.
Offshore investments offer ways to diversify one's portfolio, leverage tax deferrals to create more wealth, and pass wealth on to heirs. They can be worthwhile, so long as people go about investing in the right way.