Offshore Bonds and Time Apportionment Relief


What is Time Apportionment?

Whilst the various advantages of offshore portfolio bonds may not be applicable to everyone, and may not be a suitable product for some people, time apportionment relief is generally one of the most significant tax advantages for UK expats who may at some stage in the future return back to the UK.

Time apportionment relief will apply to reduce the amount of capital gains tax paid on any gains if and when the offshore portfolio bond is encashed in full when the policyholder is UK tax resident at the time of encashment.

How does Time Apportionment Work?

If the policyholder is UK resident for only part of the period that the offshore bond has been in existence, then the gross amount of any gain will be reduced to an amount which reflects the number of days the policyholder has been resident outside the UK.

The reduced capital gain is calculated by looking at the period from the policy commencement date to the date that the gain arises under the policy.

Thus the net gain is calculated as follows:

Net gain : Gross gain x (no. of days as a UK resident / no. of days the policy has been in force)

For example, if you were an expat who had started an offshore bond in 2004, returned to the UK in 2011 and decided to surrender the whole of the bond in 2012, tax would only have to be paid on one eighth of the gain.

What is especially attractive is that time apportionment relief applies even where the bond has been built up by a number of contributions over many years. So, if you start your offshore portfolio bond with a lump sum, then add to it with regular contributions, then the whole of the value in your bond still attracts that beneficial tax treatment. From a tax standpoint, all of those additional contributions are deemed to be made on day one – thus further reducing any gain.

This aspect is very convenient from a practical standpoint, as many people will want to top up their bond, from earnings, from regular savings, or perhaps an annual bonus. Thus an offshore bond is an ideal vehicle to use as a regular savings vehicle after establishing the bond with a lump sum.

A good adviser can set up the bond to accept regular contributions over a long period of time so it becomes a good home for savings at the same time as you build up a tax advantage should you ever decide to move back to the UK.

Invest in an offshore portfolio bond through Offshore Bond Investor and benefit from greatly reduced fees and increased allocations. For more details, please contact us.

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