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Tax Advantages of Offshore Bonds

Hi all - from time to time I will be posting tax and investment information that I hope British expats in Brazil will find useful.  I lived in Sao Paulo for over 10 years and still do a lot of business there, so know how complicated finding really good investment advice can be.

Despite there being a number of 'independant' investment firms operating in Brazil, during my time there I found most companies offered very limited services, usually giving the same or very similar advice.  So called 'experts' are often not aware of some significant benefits of offshore investments, meaning they are giving flawed advice to Brits living abroad.

Many expats are unaware of things like Time Apportionment Relief (TAR) or Top Slicing that can provide significant relief on any tax liabilities in the UK, and help ensure your capital is better protected.

TAR is available to Offshore Bond policyholders, and can be used to reduce the chargeable gain that is assessed for income tax in accordance with the number of days the policyholder owned the bond while being a non-UK resident.

The TAR rules which appy to offshore bonds enable the bond owner to claim TAR for any period they have been a non-resident since the bond started.  It does not matter whether they actually owned the bond during the period of non-residency, or even when assets were deposited or transfered into the investment.  As long as they are the listed owner at the time of claim, then all TAR rules will apply from the bond's start date.

The TAR calculations are as follows:-    Chargeable Gain x Number of Days as a UK resident / Number of days Bond in force prior to taxable event.

To give a simple example:  A British expat moved to Brazil on 1st January 2007, and invests £250,000 into an offshore bond upon arrival.  1st January 2014 the client decides to return and settle in the UK permanently.  Two years later his investment is now worth £350,000 and so decides to encash the bond on January 1st 2016 to purchase a property.  Due to the growth of the investment it means there is now a chargeable gain of £100,000.

However using TAR calculations would mean the following:

100,000 x 730 (No of days spent back in the UK) / 1825 (No of days bond in force prior to taxable event) = £40,000

So this would mean that of the £350,000 withdrawn from the bond on 1st January 2016, the client is only liable for tax on £40,000 instead of the full £100,000 gain thanks to Time Apportionment Relief.  This is an incredibly effective and yet simple way for expats to reduce their tax liabilities in the UK, and yet many people are completely unaware of its benefits.

For all Brits abroad it is worth researching this option, and setting up an offshore bond for tax benefits if you are ever planning on returning to the UK to live in the future.  If anyone is interested in learning more about this and other tax reduction methods available then please feel free to contact me.  My company has a team that provides bespoke and specialist tax services to clients, and I would be happy to assist where possible.

Hope you found this informative and useful!

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