Background

The UK taxation regime applying to Offshore Life Insurance Bonds is long established and allows for a tax-free return of capital if clean capital was used to pay the premium.

Unlike a trust (in which an individual is a beneficiary), or a company (in which an individual is a beneficial owner), in the case of a life insurance contract, the policyholder has a right in contract against the insurer under the terms of a policy which is limited to the assets contributed by the policyholder as premium (“unit-linked”). In Guernsey, assets are held by an independent trustee for the benefit of the insurer with the insurer needing the permission of the independent trustee to either transfer the assets to the policyholder on surrender of the bond or otherwise deal with the assets. See the Bourse Life Policyholder Protection for more details on policyholder protection.

The general conditions relating to the Bourse Executive Investment Bond can be provided on request from Bourse.

Advantages of a Bourse Executive Investment Bond

• Any UK income tax or capital gains tax which may be levied on the assets which are subject to a Bond will be deferred until any assets are transferred out of the Bond.
• If clean capital is used to purchase the Bond, the policyholder will be able to receive up to 5% of the capital value p.a. for 20 years. Any other sums received, other than on a full surrender, are subject to UK income tax when received by the policyholder. On full surrender, the capital element will be returned tax-free with the income element subject to UK income tax.
• Bonds (and in particular offshore life bonds) are subject to a secure and mature UK legislative framework, supported by established HMRC practice.
• A Bond is simple to use and operate with the policyholder able (other than on the death of the life assured) to determine in his/her sole discretion when to receive sums from the Bond.
• The Bond policy document may specify children and grandchildren as joint lives assured.

Disadvantages

• Where the policyholder is UK resident, the Bond cannot hold highly personalised assets and the investment of any portfolio must be on a discretionary managed basis.
• In respect of an individual UK resident policyholder (as opposed to an offshore trustee) the value of the policy is reportable annually under the Common Reporting Standard.

Benefits of combining a Bourse Executive Investment Bond with a Bourse Protected Trust

It is possible for sums to be settled in a trust to be used to purchase a Bond with the trustee as the policyholder. Alternatively a Bond can be assigned into the trust. This structure is simple to operate and provides a second level of deferral and control in respect of income distributions. Clean capital can be withdrawn from the Bond under the 5% rule and the trustees can make a capital distribution from the trust free of tax to the UK resident deemed-domiciled individual though specific tax advice needs to be taken if highly personalised assets are to be held in the Bond.