Offshore bond market powers ahead

With rising house prices and growing personal wealth, more and more people are turning to offshore bonds as part of their inheritance tax planning, according to a new report from Defaqto.

In its latest review of the offshore bond market for UK investors, the leading financial products research company says that the market grew by almost 50% to £7.4 billion in 2006, after a 60% rise in 2005, and this despite uncertainty over estate planning and trust legislation.

Continued outward migration, international portability and tax advantages are contributing to sales growth, while a further boost is expected to come from the HMRC’s crackdown on tax evasion. This will encourage people to move offshore assets into more transparently legitimate investments.

Defaqto believes that this increase in demand will require a commensurate increase in the numbers of advisers who are willing to look to the offshore market to meet their clients’ needs and for providers to maintain the momentum by targeting lower premium but higher volume business.

The report includes findings from a survey of 500 IFAs to determine their opinion on a number of service and service-related criteria in terms of importance and also how well their preferred suppliers perform against each of these. It reveals that the quality of the administrative process is hugely significant confirming that service issues are becoming more of a differentiator between providers, says Defaqto.

Fraser Donaldson, Principal Consultant: Investment, Defaqto and co-author of the report said, “Offshore bonds continue to offer advantages in financial planning and are now becoming more mainstream in their appeal. While the demographic trends persist, it will be no surprise that demand for offshore bonds will remain strong. Their general flexibility and their ability to allow tax control are particularly useful in helping to mitigate tax for those planning to spend some or all of their time living outside the UK.”

The principal characteristics of Offshore Bonds are outlined below:

Investment company based outside the UK, mainly in the Republic of Ireland and the Isle of Man

Taxation rolled-up until encashment

A choice of currencies offered

Wide investment choice

Average minimum investment in the region of £40,000