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Offshore bonds

Journalist: Emma Lunn, Freelance

ended 17. April 2025

I am wriitng a feature for Saga (over 50s) about offshore bonds and whether they should form part of a later life investment strategy.

I need financial advisers/investment experts to comment on:

How offshore bonds work

Who offers them

Tax advantages of offshore bonds

Disadvantages of offshore bonds

Who offshore bonds are most suitable for.

Experts need to be UK-based and not AI-written.

3 responses from the Newspage community

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Editor
Ross Lacey
Director & Independent Financial Adviser at Fairview Financial Management
Offshore bonds are "tax wrappers" much like an ISA or pension. Each one has its own unique tax treament and pros/cons.

Offshore Bonds provide a way to invest money tax-efficiently in that there's no immediate tax liability on any interest, dividends or gains within the bond. There is also the ability to draw 5% of the original investment out each year without an immediate tax liability. This 5% is carried forward to the following year if unused, so over time, investors can build up a fairly significant "allowance" that can be drawn.

However, any amounts above the 5% allowance would trigger a tax liability, and when the bond or part of the bond is cashed in, the total amount of gain is calculated and tax is then paid accordingly. This is taxed as "income" so the amount and rate of tax depends on the other taxable income.

Another unique feature of bonds is the ability to assign segments to another person, who can then cash-in - this can be a big win if they have less taxable income.
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Kundan Bhaduri
Entrepreneur, Investor and Landlord at The Kushman Group
I think average 50 year olds need to stay away from offshore products. These could work for higher-rate expat taxpayers that are clued in financially. The problem with these bonds is that they have massive cost drag. St. James’s Place and Prudential (other insurers available) do offer these in an insurance wrapper, letting investments grow with “gross roll-up” wherein you pay no tax on gains until you actually make a withdrawal. However these can be complex products and will not be directly regulated by the FCA - which would be a concern for a lot of investors. I personally don't like these products and stay away from them when planning our investment portfolio. But then everyone's risk appetite is different.
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David Robinson
Co-Founder at Wildcat Law
Location, location, location! When the UK left the EU it had a little talked about impact on offshore bonds. Ireland, a very popular offshore provider was no longer covered by the FSCS and has no direct equivalent. Whilst those in the Isle of Man for example are covered by a similar shceme to FSCS.
Irish providers however do have to hold client investments in segregated mandates and meet EU solvency rules but this is not a robust guarantee backed by a government. In short there is still an element of provider risk and 2008 taught us that even the most robust providers can fail.
On the positive side offshore bonds are a long established form of tax efficient saving for wealthier individuals. They can hold a wide range of investments and are often linked to discretionary fund management portfolios. The ability to draw 5% tax deferred income from the product makes them an attractive method to fund retirement income.