October 1, 2021
The Offshore Life Bond
The offshore life bond is a globally recognised insurance product that has stood the test of time. It is a tax efficient investment wrapper in the form of a single premium whole life insurance contract.
This product is widely used in all European jurisdictions and even overseas to cater for efficient tax and estate planning solutions adapted to the needs of clients and their location of residence.
The Brexit process
As we all know by now, on 1 January 2021, the United Kingdom ceased to be a member of the European Union, giving rise to many significant consequences such as the impossibility for EU/EEA insurers to pursue active business any longer in this jurisdiction without obtaining proper licencing form the UK regulator, the FCA.
This has resulted in a situation where EU/EEA insurers have no longer been able to on-board new policies for new prospective policyholders’ resident in the UK since 1 January 2021.
However, the focus has remained strong on UK nationals and especially on those already living in other EU/EEA countries where it is still perfectly permitted for them to be onboarded and to serve them in an appropriate manner, and all under EU regulations.
A Compliant Offshore Life Bond
For those prospective British clients living in jurisdictions such as Spain, France or Portugal, the Offshore Life Bond still represents an attractive planning opportunity as long as the insurance product is fully compliant from a legal, regulatory and tax perspective with local regulations. This will ensure that the product is not nullified or requalified and that it preserves all the benefits granted by local authorities to that effect.
Typically, for UK nationals living in such jurisdictions, using an Offshore insurer operating from an EU/EEA country such as Luxembourg may represent the most suitable option as the insurer benefits from a locally compliant product while ensuring that clients are still served by English-speaking Customer Service representatives who are well aware of the local implications of such products and also of any specificities which involve the proper handling of UK national clients over time.
In this sense, it is very true that, despite Brexit, some of these clients may have a wish or intent to come back to their home place in the UK at some point in time, reason for which some key aspects need to be taken into consideration before relocating.
Coming back to the UK
As already mentioned, the Offshore Life Bond still remains a valid and appropriate estate and tax planning solution not only for UK residents but also for UK nationals planning to return to the UK.
In this sense, we would like to highlight the following key characteristics:
- In the UK, the Bond is typically a non-income producing asset, so gains can be rolled up and tax deferred until a chargeable event such as maturity or surrender (either partial or full);
- 5% of the original investment can be withdrawn annually for up to 20 years cumulatively as a return of capital, without an immediate tax liability;
- The underlying assets of the Policy can be managed without any tax reporting or capital gains tax as long as the UK tax rules are strictly followed, especially with regard to the type of management and financial assets eligible.
- It can be assigned (by way of a true gift) in the UK without triggering an immediate tax charge;
- It can be written in trust for inheritance tax planning and can be set up with multiple lives assured for greater succession planning benefits.
- The Bond could be segmented in order to grant more flexibility while surrendering and assigning such a Bond.
Adapting the Offshore Life Bond
In the case of return to the UK, the Offshore Bond could be adapted in order to fit the requirements above, notably in terms of investment management and type of investments. Indeed, in the UK, discretionary managed portfolios and investments in collective investment schemes are typically allowed in compliance with the so-called UK PPB (personal portfolio bonds) rules. Furthermore, and in order to ensure compliance with local RDR rules, only investments in clean-share classes is allowed as it is obligatory for all the charging elements of the wrapper to be fully transparent for the UK resident policyholder.
At OneLife, we understand the concern and the questions frequently raised by our Partners and Clients as regards the UK market. For this reason, we have set-up a specific and dedicated team of Sales and Customer Services experts who are fully trained in UK matters affecting the Offshore Life Bond and who are pleased to address any possible matters or concerns which may arise.
Want to know more? Contact our teams
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