The changes affect our guided-architecture product Kudos. The changes impacts the following closed product: Kudos. Click on this story for full details. The fund will move to a more concentrated portfolio of around holdings. The merger affects the following closed product: Kudos.
Policyholders have been written to about the merger. Click on this story for the full details and to view sample policyholder letters. Click on this story for further details. As the size of the fund has reduced to a level significantly below the threshold set out in the fund prospectus they feel that it is no longer viable, or in the best interests of shareholders, to continue running the fund. The change affects the following guided-architecture products: Preference and Kudos.
Affected policyholders have been written to. Affected policyholders have been written to to notify them of the changes. RL Adviser. RL Online Service Centre. RL Wrap. RL App. Watch our Youtube videos. Section navigation Introduction Fund centre Fund updates Fund articles.
Kudos downloads. Page reference:. Top-slicing relief allows clients to annualise the gain made on an investment bond so that the rate of tax applicable is calculated as if an element of the profit had been made each year the bond was held. Changes to time apportionment relief were introduced on 6 April as a result of a consultation in August The consultation did not mention the impact these changes would have on top-slicing relief for offshore bonds.
However, HMRC has recently clarified these details. Where previously offshore bonds could always top slice back to inception on final events and excess events exceeding the 5 per cent tax deferred allowance , the changes now limit the ability to slice excess events for bonds taken out or added to on or after 6 April For these bonds, the number of years is the lesser of the number of years since inception or the number of years since a similar event, that is, the last excess event.
This brings offshore bonds taken out on or after 6 April , or those added to from this date, in line with onshore bonds, which have always had this rule. The biggest impact will be on clients who exceed the 5 per cent allowance which can be withdrawn tax deferred each year on an offshore bond. Previously, the excess could be sliced back to inception.
However, from April , such excesses could no longer be sliced at all. It will also mean your clients will need to carefully consider if they want to top up an older bond as the original treatment on excess events could be lost. For instance, say Dean has an offshore bond that he withdraws 7.
Dean therefore exceeds the 5 per cent allowance by 2. Previously, the longer the bond was in force the more years this excess gain could be sliced over. This provided additional oppor-tunities above an onshore bond to pay tax at a lower rate on the excess where the full excess moved the individual from basic to higher or higher to additional rate tax.
So if Dean took out the offshore bond on or after 6 April , or added to an older bond on or after this date, the number of years on these excess gains is limited to one, as the excess occurs each year. Businesses found guilty could face unlimited financial penalties and many other unpleasant consequences. With the right of course of action, advisers can help reduce the personal allowance tax trap bill.
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This article looks at how offshore investment bonds are used, the benefits on offer, how to spot hidden fees and how to avoid making a bad financial decision. This article must not be used in isolation to make a decision about your finances and you must always seek professional advice from an independent financial adviser or wealth manager. An offshore investment bond is a tax wrapper that can hold different kinds of financial products including stocks, shares, mutual funds and structured notes.
However, the location and type of each specific bond is based will determine the options that are available with the bond. In terms of how it works, it is a standard life insurance product and different financial products can be bought and sold through. Because the bond is an insurance product, it provides both a tax and legal shield to the investments held within. As an offshore investment bond is a tax wrapper holding a variety of financial products, it is important to understand how different offshore bonds can have different underlying investment options.
Highly personalised offshore bonds enable the holder to invest in most financial products. These offshore bonds are often used within pensions and investments by advisers looking to hide commissions and client fees to make them look more lucrative. The client will often be tied into the bond for a long period of time and the fees can increase due to the commissions paid to the adviser that are based on the initial investment.
For high net worth investors with significant capital to invest these bonds can be beneficial, provided the advice is offered on a fee-only basis i. Collective offshore bonds, unlike highly personalised offshore bonds, have restricted investment options, all of which must be approved by the insurance provider. Often collective offshore bonds will be used by advisers for clients with smaller investment capital and used for inheritance tax planning. Provided the bonds are only provided on a fee-only basis i.
For UK residents, collective offshore bonds are not tax free, instead the tax is deferred and may be payable in the future. It is also vital that you are aware of the underlying investments and understand why your adviser or wealth manager has recommended them for you. An adviser should always provide a full report detailing all aspects of each investment, including the underlying investments. You should never allow this to be discussed at a later date as you will not have the full story regarding fees and tie-in periods.
If any of the report your adviser produces for you is missing, you should avoid agreeing to anything to ensure you are not exposed to potentially toxic products or hidden fees or charges further down the line. As previously mentioned, offshore investment bonds are naturally tax efficient for non-residents due to the jurisdiction and nature of the investment.
As life insurance products, the investments held within are naturally shielded from tax in the traditional means with gains not attracting capital gains tax and any income drawn from the investment taxed only as income tax in the country of residence of the investor.
Investors can also opt to not withdraw every year and take a larger sum before being subject to tax. Due to the nature of the income being charged as income tax, expats or UK non-residents living in tax friendly jurisdictions such as the UAE are able to draw an income free of income tax altogether. Therefore, if the investor knows they will be moving to a tax friendly jurisdiction, they may be encouraged to defer any withdrawal until they are a tax resident in that jurisdiction to minimise their tax liability.
There are essentially two types of fee structures for offshore investment bonds available for expats and UK non-residents. The modern UK style, FCA-led approach and the traditional offshore approach which is far less favourable. As most investors will be aware, in the UK the FCA has set up rules to ensure that financial advisers and wealth managers adopt a fee-based approach to financial advice and wealth management.
This will normally manifest as a percentage of the fees under management for example 0. The FCA also require all fees to be clearly explained before any agreement is signed and the investor is fully aware of all fees and charges and how they apply throughout the life of the investment. This means that the traditional method of offering offshore investment bonds using a commission-based is still used by a number of offshore advisory firms that use the commissions to hide fees and make investments less lucrative and more expensive than they should be.
An offshore investment bond will have an establishment fee. This fee is calculated as a percentage of the investment and paid on an annual basis. This fee is applicable in both the modern approach and the traditional approach and is payable to the provider of the offshore bond.
While the percentage can vary, it is normally around 0. Be mindful that with many offshore advisers the establishment fee is based on the initial investment amount or the current value which ever is the greater. For those who plan to draw from the bond within a short period of time could actually be increasing the costs without knowing it.
An offshore bond will also normally be subject to an admin fee which is payable to the provider, irrespective of which model is in play. This admin fee will vary according to the provider but will typically be a fixed amount per annum. Additionally, if the investor is choosing the offshore bond through an adviser or wealth manager, they will normally apply their own fee for managing the product.
Like the establishment fee, this will normally be a fixed percentage of the amount under management and will include the management of the underlying investments. Under the UK model, this is the only way that adviser can be compensated and breaches of this would be in breach of FCA rules. While the management fee may be between 0. Commission payments are not permitted under FCA rules in the UK, however offshore advisers can still receive payments from providers as a commission payment.
While some advisers may disclose this voluntarily, it is normal for the commission payment to be hidden within the establishment fees of offshore bonds. It is important to state not all offshore advisors work on a commission basis and we work with those that are fee based following a UK model for transparency. The commission will normally be based on the initial investment amount and spread over a number of years. Ultimately, as the provider has paid the adviser upfront, the adviser has made their money and therefore has no long-term commitment to the investor or the provider.
While the provider needs to recover the payment given to the adviser over that ten-year period. Under these circumstances, the investor would also be subject to a penalty charge if they were to close the investment and withdraw their money. The problem for the investor is exacerbated if the fund underperforms or the investor wishes to withdraw money from the investment as the fees would still be based on the original amount, not the actual value of the investment.
It is very rare for anybody to work for free. If a financial adviser or wealth manager is offering their initial most important or ongoing financial management services at zero cost, it is essential you ask the question of how they get paid as it is likely they are hiding additional costs from you.
While it is common from advisers and firms to offer initial consultations for free on the basis that this is the start of a relationship, the actual advice and guidance will always be paid for. If you are unclear about how an adviser is getting paid, you must always ask and seek clarification before signing any agreements or handing over any capital.
We would always recommend obtaining a second, independent opinion when considering paying via commission. Before making an investment decision it is vital that the investor is fully away of all aspects of the investment being made, including the underlying investments of any wrappers, such as QROPS, SIPPS or offshore bonds. While this may sound obvious, some advisers will purposefully exclude the underlying investments from reports on the basis that they will be disclosed further down the line.
However, as the investor whatever you agree to you are responsible for, especially without the protection of the FCA. Advisers that do not disclose the underlying investments are likely to be agreeing you to riskier investments that cost more and pay larger commissions — which is ultimately only in their interests and not yours. Not all financial advisers or wealth managers are able to offer a full range of investment products to investors and some are limited purely to life insurance products due to the regulations they may hold.
As an investor, you should always check that the adviser you are dealing with is able to offer a wider ranger of investment products to ensure you are getting independent and whole of market advice. When discussing your situation with any financial adviser or wealth manager, always ensure that your future plans are also discussed as this may help you avoid significant tax bills and other costs in the future. Some investments can be limited to sophisticated investors only, meaning they should only be available to people who have significant capital or are able to self-certify as knowing what they are doing.
However, you should always ensure that as an investor you are fully aware of the risks of the investments recommend to you, and always be fully aware of all the costs and fees associated with the investment before making a decision. After 10 years — The whole gain does not have to be included as assessable income under Section 26AH. Email: info expatfinancialplanning.
Professional Standards. International Planning and Advice. Join the monthly Insights newsletter. About You. International Financial Planning and Advice. Our Story. How we work. Get in Touch. Investing outside of Australia as an Expat: The tax treatment of offshore portfolio bonds.
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