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Expat Investor : September 2007
September 2007 EXPAT INVESTOR 19 QUOTE, UNQUOTE If you need to make a claim, wouldn't you want to speak to someone who will understand your needs? To get the feeling, there's only one number to call. 24 hour multi-lingual helpline Your calls will be recorded and may be monitored. Call +44 (0) 1273 208181 www.bupa-intl.com "I feel special because they speak to me in my language" The amount of money going into offshore bonds has never been higher than it is today, and, particularly in the UK, the number of companies offering these products keeps on growing. Indeed, it's probably fair to say that the offshore bond is now accepted as a part of mainstream financial planning. But the market has not always been this buoyant. It was not so long ago that the most positive thing to say about an offshore bond was that it was a niche product, often viewed with suspicion -- an esoteric way of promoting tax evasion favoured by dodgy offshore financial centres. So, why the change and what can these products offer today's expat investor? Market growth The table above shows how the offshore bond market has grown over the past 10 years. The market has more than trebled in a decade -- yet the most significant growth has occurred over the last three years. Although the UK represents the largest element of the total market, some £6bn in 2006, the factors underpinning this recent growth look pretty consistent across all markets. These key drivers are: Buoyant global stockmarkets and economic growth. Allied with increasing levels of personal wealth this feeds through to more people who are able and willing to invest. Offshore investing has become a more acceptable and familiar option in any financial planning. This is largely due to the fact that offshore investments are better understood today and are no longer seen as tax efficient schemes only appropriate to the very wealthy. More companies are launching products. This expands choice and raises awareness as the amount of promotional activity is increased. There's been a boom in the number of Britons emigrating to places where offshore products are particularly appropriate. Indeed, emigration doubled between 2001 and 2006 (Source: Institute for Public Policy Research). The basic concept is pretty straightforward. An offshore bond is a lump sum investment product that provides access to a wide range of funds. Whilst an element of life assurance is likely, the protection element is typically of minor consideration compared to the main investment focus of the product. Offshore bond attributes It is important to understand at the outset that there are different types of offshore bonds which in turn will appeal to different investors. This said, there are some generic attributes shared between all offshore bonds. Convenience: The provider takes care of all effort involved in keeping track of a diversified investment portfolio and manages all paperwork involved in buying and selling investments. Consolidated valuations: Single product value is given that pulls together the value of all the underlying holdings. Lower costs:Investors can benefit from the purchasing powers of providers when they come to place deals with investment fund providers. Because of the volume of business involved, providers can secure better terms A compelling case for offshore bonds Fast Facts 77016 Fast Facts 77455 than the private investor who goes direct. Tax benefits:Perhaps the most significant is the fact that the investment funds grow virtually free of tax. As a result, the funds accumulate gross, which can result in potentially greater overall returns. An investor is subject to income tax on their returns; but when this tax is due it can be deferred until the investor makes a withdrawal. In other words, it is up to the investor when they pay tax and, if their circumstances change, at what rate. It is, however, possible to withdraw up to five per cent each year of the amount invested without an immediate liability to tax, meaning the investment is not locked away. Another important tax-related benefit is that investment options can be switched as often as required without taxation consequences. Investment options A key thing to bear in mind when looking at an offshore bond is investment choice; not all bonds offer the same breadth of options. The simplest type of product will offer a limited range of funds. These funds are insurance funds -- funds run by the company offering the bond. The choice can often run into hundreds. As a result these products are often called 'insured bonds' where investment amounts often start at £10,000. Next are what have become known as portfolio bonds. These offer access to almost the full universe of collective investments. Within the definition of collective investments are unit trusts, open-ended investment companies (OEICs) as well as insurance company funds. In many cases, the choice of funds runs into thousands. Investment amounts often start at £25,000. Finally, there are personal portfolio bonds. These take the portfolio bond concept and allow investors to hold stocks and shares alongside collective investments. Investment amounts start at £50,000. Offshore bond types These different product types are likely to appeal to different customers. Insured -- less sophisticated, people with smaller capital to invest. Comfortable with a good, if limited, choice of funds that the company chooses to offer. Portfolio bond -- for the more sophisticated and wealthier investor. Likely to appeal to expats intending to return to the UK, as personal portfolio bonds are not tax efficient if the proceeds are to be taken in the UK. Per sonal portfolio bonds -- most sophisticated investor. These are not appropriate in the UK due to taxation policy. Offshore bonds are almost exclusively available through independent financial advisers (IFAs), as the companies offering them do not typically sell direct. Given the options available, and the degree of investment freedom, it is important to seek advice before investing in a bond. For more infor mation on offshore bonds from Skandia Inter national, enquire through the fast facts number below. Adrian Smith, Marketing Manager with Skandia International, explains the rationale for making an investment in the offshore bond market. Year 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Gross sales £2.7 £3.8 £4.4 £5.6 £6.8 £5.4 £4.4 £5.3 £6.9 £8.7 (£bn) Source: Association of International Life Offices.
July August 2007