Tax Wrappers. Investment Bonds, Portfolio Bonds

This Quote is taken directly from the HMRC website.

“In law, it is the insurer, not the policyholder, that owns the property that determines the benefits under a life policy. The policyholder retains nearly all the advantages of direct personal ownership of that property. Without the PPB legislation, because the property is held in the ‘envelope’ of a life insurance policy, the policyholder would not have to pay income tax on dividend and interest income arising from the investments nor capital gains tax on disposals when the investments underlying the policy are altered. Tax on any gains on the policy would be deferred until the policy comes to an end.”

All PPBs are provided by insurance companies, so in essence, they are insurance products. However, yet further categorisation comes into play here, as they are known in the insurance industry as insurance-wrapped investment products.

Their primary function is to provide an advantageous investment environment. They have been widely used by expatriates and certain investors in the UK, Europe, and several other locations worldwide, including Israel, as a legitimate tax-efficeint investment vehicle.

There are two further categories for PPB’s,

1. Collective
2. Highly Personalised or Executive

– Collective Bonds can only hold collective investments such as mutual funds.

– – Highly personalised executive PPBs can hold all manner of investments and would be fully open architecture; thus, they could hold the direct stock, for example, as well as derivates and structured products.

Collective bonds

The Collective Investment Bond is good for both UK residents and returning UK residents. Basically, it can be used both offshore and onshore.

If one has utilised a Personalised investment bond, it’s vital that when one returns to the UK, you “endorse” the offshore bond so you can continue to benefit from tax-deferred gains.

If you fail to endorse the offshore bond, you could find yourself paying income tax on annual deemed gains of 15% calculated from the original sum invested, regardless of whether the investment produced any gains or not. Harsh, I know, but true nonetheless.

By instructing the offshore investment bond provider to endorse the policy if you return to the UK, you restrict the invested assets to those that are permissible, down to those within Collective Investment Bond rules.

Bonds are usually issued as a single policy or a group of separate policies known as a “cluster of policies.”

The initial charging term is fixed (based upon the commission and charging structure agreed) at the time of the policy activation and this cannot be varied or waived; therefore, early encashment of the policy results in a “surrender charge” or “early withdrawal charge”.

Collective Investment Bond Typical Key Features:

• Extensive choice of collective investments, funds and unit trusts, Eurobonds and currency deposits.
• You can transfer in and consolidate other existing collective investment funds or unit trusts
• Switch funds or make deals on assets when appropriate for you.

Eligibility:

Collective Investment Bonds can be a regular premium, whole-of-life, or life assurance contract issued by the insurer. They are available to most international investors outside of the main regulated territories, such as the UK, the USA, and Australia. Anyone aged between 18 and 89 (inclusive) can invest in a Collective Investment Bond.

Early surrender:

A full encasement usually results in exit penalties being applied in the early years through surrender charges linked to the policy’s term. The amount of this charge reflects the cost of the set-up fee, including any payments (such as commission) made by the bond provider.

This charge may also apply if you cash in part of your bond and the amount remaining is less than either 25% of your total investment.

FAQ’S

Can you place a Collective Investment Bond in trust?

Your financial adviser may suggest that you place your collective bond in trust. This can ensure your wealth is used as you intend during your lifetime and after you die, and may offer some advantages in the future, for example, if you are self-employed or get divorced, or if you have an estranged family.

It can also benefit your family or beneficiaries after your death by helping them to avoid probate issues.

What will happen to my collective investment bond if I move back to the UK?

In the UK, a collective bond is regarded as a portfolio bond.

References :

ESTATE PLANNING WITH THE SOVEREIGN LOAN TRUST – Global Referral Network. https://globalreferral.group/estate-planning-with-the-sovereign-loan-trust/

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