Investing Offshore

The Probe - July 2006

Once you’ve maximised your onshore investments such as pensions, ISAs and all the other options we’ve mentioned in this column you may well be interested in looking at what offshore investments have to offer you.

By investing offshore your investments have the potential to grow without deduction of UK tax often referred to as ‘gross roll up’ or ‘tax free roll up’ (although there may be a small element of withholding tax to be paid). The UK tax is merely deferred to the time of encashment.

So why would you choose to invest offshore if you’re a UK taxpayer and planning on staying in and then encashing the investments in the UK?

Over a longer term such as 15-20 years, the ‘gross roll up’ effect can substantially outweigh the typically slightly higher charges, and as in any market there are some offshore investments that are more competitively charged.

However, one of the main reasons is that it can provide flexibility in terms of long term financial planning. For example, if by the time of encashment you’re a basic rate tax payer you could avoid paying higher rate tax on the growth. Or even better, you may decide to encash in a tax year when you have no earnings, maximising your personal allowances (ie after you’ve retired but before you draw on your pensions). I’ve also heard of instances where the investments or a part of them have been gifted to a non-tax paying spouse or child (over the age of 18) to achieve the same effect.

You may even consider retiring abroad, in which case the tax payable on the growth of your investments would not necessarily be subject to UK tax. This is great if you’ve retired to a low tax regime such as Cyprus or Hong Kong but if you decide to retire somewhere like Sweden you may prefer to encash your investments before emigrating!