News/Events

Offshore portfolio bonds [14th August 08]

Those readers who don’t like the sound of structured products and want the relatively high known returns with no capital risk one and therefore keep money currently in their bank or building society account, may well be missing a trick. Have you considered holding your savings account inside an insurance company’s offshore portfolio bond?

If not, then you should take advice for several reasons as:-

• You can get institutional interest rates that tend to be higher.
• Depending upon your tax status you should get gross roll up… or to put it simply, no tax to pay on the interest until you cash-in the bond – there is no fixed term at outset.
• This possible tax liability can be minimised or avoided with some prudent tax planning.

Currently, you can get over 6.5% interest (as at 31^st July 2008) after all charges/fees, which for a 40% taxpayer equates to a gross rate of over 10%! Plus you can have immediate penalty free access to 97% of your capital. Base rate has been held for at least another month and the possibility of fixing at over 6.5% for 1.2 or 3 years may not be available for long?

Depending on personal circumstances, 5% per annum regular withdrawals are available with no immediate tax liability but taken into account upon final encashment. By spreading your investments across numerous banks/building societies, all on one form, you get improved investor protection with no administration headaches. 

The core protection when a financial services firm is unable to meet claims against it is provided by the Financial Services Compensation Scheme (FSCS). The FSCS covers business conducted by firms authorised by the Financial Services Authority (FSA) and is funded by levies from these firms. The offshore provider is therefore covered but there is no other protection and the investment with the bank or building society has no protection.

Many would be surprised that for Deposit Accounts held with their Bank or Building society in the UK, the FSCS only protects depositors for up to £35,000 (100% of the 1st £35,000 of each depositors claim). Joint holdings will have double the cover e.g. £70,000.

In both instances, the position with regards to placing capital into Northern Rock may be different as the Government appear to be giving 100% protection for both of these types of accounts.

Lastly, these insurance offshore bonds can offer simultaneous tax and death tax planning opportunities, and free switching into other investments when the time is right. It’s hardly surprising the major offshore insurance companies are currently taking in substantial amounts into these portfolio bonds.

A final word of caution as the charges and terms of all the above vary enormously, so a discussion with a regulated and professional IFA who knows the market is essential. Their remuneration is built into most products by the providers so it need not cost you extra and in most cases the products are not available direct.

You should review all financial arrangements regularly, speak to your IFA. Langtons is offering all readers a free initial review without charge or obligation.

This article was written by Langtons - Published in the Western Morning News, Money, 14th August 2008