An International Adviser online poll found 70% of respondents were more likely to use offshore bonds, which are taxed on an income basis, and benefit from gross roll-up and tax deferral, following Tuesday’s Emergency Budget.
A further 13% said they were not more likely to use offshore bonds, while 17% said there was no change in their likelihood of using the tax wrappers.
In the run-up to the Budget, commentators from the offshore industry had predicted there would be a boost to their sector from the rise in CGT. It had been believed the move would restore parity between the taxation of their products, which mirror a person’s income tax rate, and collective investments, which were taxed on CGT at 18%.
Though the increase in CGT was not as great as expected, advisers clearly believe insurance products such as offshore bonds are now more attractive relative to mutual funds. Though there is a still tax disparity, advisers may be taking into account features of offshore bonds that mutual funds do not possess.
These include the ability to assign bonds to third-parties who may be in a lower tax band, the 5% annual tax-free income feature and being able to switch investments without triggering a tax charge.