As reported, the Budget removed the tax advantages of the Aegon Ireland Wealth Planning Account (WPA) and CLI Accelerated Access Account (AAA).
In response, the companies say they are striving to keep their clients informed of the latest developments as the situation continues to unfold, while at the same time helping to them to find alternative products to the two offshore bonds.
At CLI, managing director Sean Christian put the loss of the AAA bond in context, by noting that it was the only one in its product range affected by the Budget changes, and that it represented “less than 2% of our sales” in 2011.
And 2011, he noted, “was a record year for us, [during which we wrote] in excess of £1.2bn of single premium business, [giving us] a 20% share of the UK offshore single premium bond market.”
Christian said that the draft Budget legislation had left “some ambiguity as to how existing policyholders of AAA would be impacted,” and as a result, “CLI has been discussing the issues with HMRC, with a view to providing our policyholders with a clear explanation of the options open to them.
“We hope to be in a position to write to policyholders by the beginning of May.”
At Aegon, a company spokesman said the company has issued a letter to intermediaries whose clients have some of the 245 WPA cases currently in force, as well as to the policyholders themselves, “explaining the impact of the proposed legislation” as it is currently understood.
“We continue to monitor the situation, and we will be in a position to update [the situation for our clients] once the legislation…becomes final,” he added. “In the meantime we are working on alternative solutions for our existing WPA customers.”
‘Still a place for offshore bonds’
Advisers who recommend offshore bonds, meanwhile, told International Adviser that the removal of the Aegon and CLI products from the market by the Budget changes – along with the ending of a practice whereby ‘deemed gain tax credits’ enabled some non-UK tax residents to accrue deemed gains as a non-UK taxpayer, which they were able to later offset against actual gains as a UK taxpayer once they returned to the UK – has failed to dent the compelling argument in favour of such products for many of their high-net-worth clients.
“Offshore bonds remain very attractive for expats, and still retain their gross roll up [feature] for income tax purposes, as well as the ability to be placed in trust for inheritance tax,” says David Russell, chief executive of Guardian Wealth Management Qatar, echoing the comments of other advisory industry executives with expatriate clients who favour bonds for their clients.
“The investment choice available is also unrivalled.”
Like Russell, Skandia head of product law and commercial development Rachel Griffin notes that the “arrangements” the Government sought to put an end to in the Budget, as they were “felt not to be in the spirit of the rules”, had not been widely used, relative to the widespread use of offshore bonds generally.
As a result, “we see the impact [of the Budget changes] on sales of offshore bonds to be broadly neutral,” Griffin added. “All the core reasons to invest offshore remain, for example, simplified administration, no tax on the growth within the tax wrapper or on changing investments and access to a wide range of assets.”
That said, however, Griffin noted that “seeking professional independent financial advice” was more “essential” than was the case previously, a comment echoed by other experts.
Crackdown ‘may benefit bonds’
Others, including Axa Wealth Int’l sales manager Richard Leeson, believe the continuing crackdown by UK tax authorities on the most creative tax avoidance schemes could have the effect of driving money into offshore bonds.
For example, a ruling within the last few days, in a case involving such high-profile investors as Manchester United Manager Sir Alex Ferguson, found individuals could not claim tax relief for certain kinds of investments in film distribution rights.
Such schemes are typical of the kind HM Revenue & Customs is seeking to end, Leeson notes, and which could cause advisers to opt for other investment products, including mainstream offshore bonds.
