In 2009, according to the Office for National Statistics, the number of people leaving the UK for a period of 12 months or more was 368,000.
The number of people taking long-term migration out of the UK has been above 300,000 since 1999*. What many of these émigrés may not realise is that making an investment into an offshore bond before moving overseas could generate a real tax benefit when they return to the UK .
A UK resident will normally incur an income tax liability on any gain when a chargeable event occurs, for example, when they cash in the full value of an investment bond.
However, a claim can be made to reduce any gain and any associated tax charge in respect of all time spent outside of the UK during the period the bond has been invested. This is referred to as ‘time apportionment relief ’.
Only an offshore bond can generate this relief, as this is a unique benefit to offshore bonds.
So for any individual looking to invest, if there is a chance they may spend some time working outside the UK, the potential tax advantages of time apportionment relief should not be overlooked.
Consider the case of Kate Bracklesham who invested in an offshore bond in March 1999 and then spent some time working overseas as a non UK resident. She returned to the UK in June 2003 and was regarded as a UK resident from that date. In November 2007, Kate decided to cash in her bond when she was a higher rate taxpayer, with a chargeable gain of £63,500.
Instead of paying tax of £25,400 (40% of £63,500), Kate has used the time she spent outside of the UK to reduce her tax charge to £13,249, a saving of £12,151 because time apportionment reduces chargeable gain to only £33,122.
The formula for time apportionment relief is:
Gain x Number of days as UK resident/Number of days the bond has been in existence
This benefit applies to additional investments into an existing offshore bond as these may also benefit from time apportionment relief, even though the additional investments may not have been made during a period of non UK residence. In this way it may also be appropriate to continue to invest in an existing bond after returning to the UK.
Topping up an investment could be more beneficial than taking out a new bond as it should reduce the tax charge on the gain from the additional investment with the benefit of time apportionment relief.
