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Old Mutual Wealth: Shattering preconceptions and seeing offshore bonds in a new light

Investment news for Financial Advisers & Paraplanners

6 Mar 2019

Old Mutual Wealth: Shattering preconceptions and seeing offshore bonds in a new light

Many financial advisers have preconceived ideas when it comes to offshore bonds and the type of clients they may be suitable for. However, the changing landscape and new breed of bond solutions are opening up greater opportunities, helping build renewed interest and traction in this market.

The points below shatter some of these preconceptions, helping you see offshore bonds in a new light:

1. Offshore bonds can help a wide variety of client needs, not just top-end clients with sizeable lump sums to invest.

The landscape is shifting, and more clients could benefit from investing in offshore bonds. Here are some key examples:

  • More people are now at risk of reaching the pensions lifetime allowance (LTA). The LTA has nearly halved in the last eight years, and the number of people reaching the LTA has jumped 40% in 2016/17¹  tax year. This doesn’t just impact wealthy clients; diligent savers could also be impacted, and those who receive strong growth on their investments.  Offshore bonds offer these clients a tax-efficient way to invest for their retirement.
  • UK inheritance tax (IHT) is impacting more families and rising property prices means more people could be concerned about it. More families might be considering trust planning, and offshore bonds offer many advantages if used inside a trust.
  • More families want to pass on wealth during their lifetime to help their children. Investing in an offshore bond means segments of the bond can be assigned to adult children in a tax-effective way, giving parents flexibility and control.

Old Mutual International’s new Select Bond has an initial premium of just £20,000 and has been specifically designed to appeal to a wider customer base.

2. Greater understanding and simpler solutions are helping offshore bonds shake off their reputation as being complicated.

Offshore bonds can help simplify client holdings and provide simple ongoing administration:

  • Investments are held in one wrapper, making it simple for clients to administer and manage.
  • There is no need for a tax return unless the client withdraws more than 5% in a policy year or encashes the bond or some of its segments. This is a very attractive point for many clients looking for simplicity.
  • As capital gains tax does not apply to bonds, funds can be actively managed without generating a tax liability or the need to include it on a tax return.

3. Offshore bonds are more cost effective than ever before.

Increased transparency and market forces have had a positive impact on charging structures, and new breed solutions, like Old Mutual International’s Select Bond, takes this a step further; it has one simple competitive charging structure, no initial charge, no asset dealing charge, and no quarterly admin fee applied to the bond.

4. Offshore bonds enable clients to benefit from tax-efficiency and are not tax avoidance schemes.

In today’s climate, clients want more reassurance that they are investing in  legitimate, well-regulated investment solutions. Offshore bonds are a far cry from the complex and aggressive offshore tax avoidance vehicles that can be used by companies and individuals to hide their money and not pay tax due.

Tax evasion is both illegal and morally wrong, and should not be confused with legitimate ways of making personal finances more tax-efficient. Offshore bonds do not avoid tax, but offer investors control and flexibility around when tax is paid.

With tougher sanctions in place if an adviser is found guilty of enabling a tax avoidance scheme, there is even more focus on advisers using legitimate tax-efficient schemes for their clients.

These are just some of the reasons why offshore bonds are becoming more attractive. For more information on whether offshore bonds could be right for your clients, please visit our website.

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