Exploring opportunities in offshore bonds · 4 Exploring opportunities in offshore bonds Growing advice opportunities More of your clients will be hit by Inheritance Tax Data from

Exploring opportunities in offshore bonds

For UK financial advisers only.

Front cover title goes here2

WelcomeWe know your time is precious, so grab yourself a drink, sit back and relax. This brochure summarises the advice opportunities for offshore bonds, and will give you some food for thought while you are having your tea break.

What you need to know What are the growing advice opportunities?

Key advantages of offshore bonds

How they fit into your clients’ wider financial plans

How they can help add value to your clients

Quilter International’s range of offshore bonds and trusts

Why you should read this brochureYour clients value your knowledge and expertise, and being able to demonstrate this value to your clients is becoming increasingly important.

Using ISA and pension allowances is often seen as standard practice, but taking your clients beyond those conversations, and constructing a well-rounded, long-term financial plan is where the real value is added.

This value can be further enhanced if you enter the area of generation planning, an area your clients won’t look to do themselves.

OpportunitiesIf the opportunities highlighted in this brochure resonate with your clients, please do get in touch. We are one of the world’s leading providers of international cross-border investment solutions, and can provide specialist support and expertise to you and your clients.

ContentsGrowing advice opportunities ��4

Financial planning solutions ��6

How offshore bonds can help in retirement planning ��9

How offshore bonds can help parents save for their children �10

Why are offshore bonds used in trust planning? ��12

The importance of trust planning ��13

Quilter International’s range of trusts ��14

Trust support ��15

Quilter International’s range of offshore bonds ��17

We are best placed to help you and your clients ��18

Quilter International 3

Exploring opportunities in offshore bonds4

Growing advice opportunities

More of your clients will be hit by Inheritance TaxData from HMRC* for tax year 2018-19 shows the amount that they’re receiving through inheritance tax (IHT) continues to climb to new highs, hitting £5.36bn. This continual climb shows no sign of easing, with IHT receipts increasing by 57% in the last five years.

More of your clients will be caught by the squeeze on pension allowancesIn HMRC’s Pensions Lifetime Allowance report, September 2019, the amount of Lifetime Allowance (LTA) excess charges paid increased to £185m in 2017-18 (an increase of 28% compared to the previous tax year).

Our in-house calculations estimate that someone with £700,000 in their pension fund today, could reach the lifetime allowance in less than 10 years at 6% net growth, even if they don’t make any further pension contributions.

Since April 2016, high earners have been impacted by the tapered annual allowance. The amount they can put into their pension has reduced from £40,000 and could be as low as £4,000 per annum depending on how much they earn.

£5.36bnreceived through inheritance tax

57%IHT receipts up 57% in the last five years!

Advice opportunityYou are likely to have clients who are caught by the tightening of the pension allowances. It’s not just wealthy clients who are impacted, diligent savers and those who have had strong investment performance could be caught by the reduced lifetime allowance.

Many of these clients will have already maximised other allowances, such as ISAs, and will be interested in other ways to build their retirement nest egg.

Advice opportunityYou may have clients who face an IHT liability. IHT now impacts more families, and the rise in property prices means it’s not just the wealthy who are impacted.

IHT is sometimes referred to as a voluntary tax, as it can be mitigated through careful planning. Being able to mitigate IHT for your clients and help them gain control over wealth distribution is a great way for you to demonstrate the value of your advice to your clients.

28%increase in the amount of LTA excess charges paid in just one year.

*HMRC Tax and National Insurance Contribution receipts, released February 2020


More of your clients will want to save for their children/grandchildrenYou may have read about the struggling millennials, how they are saddled with debt from university and can't afford to get on the property ladder.

In January 2020, Halifax data revealed that the average price paid for a typical first home continues to grow, and is now £231,455, an increase of 9% on the year before.

With the average first time buyer deposit and cost of going to university reaching unprecedented levels, it’s easy to see why a growing number of parents (and grandparents) feel the need to save to help the next generation.

Advice opportunityYou are likely to have clients who want to save for their children and grandchildren, but want a solution which keeps them in control without compromising on tax-efficiency. (Remember, a Junior ISA automatically becomes the child's when they reach age 18 so the parents lose control over how they spend it!)

More of your clients will have a complex family structureComplex family structures are becoming the new norm. With four in ten marriages ending in divorce1, nearly half of which have dependent children2, and with a parent of a child dying every 22 minutes in the UK3, the family structure can change rapidly.

Advice opportunityIt is important that your clients think through the financial implications of their death. You can help them realise the importance of estate and trust planning in ensuring their wealth is distributed in accordance to their wishes, and children don’t end up inadvertently disinherited.

1 Office of National Statistics estimate 42% of marriages end in divorce.

2 Office of National Statistics, Divorces in England and Wales: Children of Divorced Couples, released Nov 2015, shows in 2013, 114,720 couples divorced, and 55,323 had one or more child under age of 16.

3 www.childbereavementuk.org/death-bereavement-statistics

42%of marriages ending in divorce

22 minutesevery 22 minutes a parent of a child dies in the UK

£231,455average price paid for a typical first home.


When exploring other solutions, you should consider how offshore bonds can benefit your clients when held as part of a wider financial plan.

Here are four key reasons why financial advisers and their clients choose offshore bonds:

SimplicityYou and your clients are busy and want solutions that are easy to administer and don’t require onerous tax reporting. With an offshore bond, a wide choice of assets can all be held in one place, and as offshore bonds are a non-income producing asset, they don’t need to be included on a tax return (unless, there is a chargeable event, such as a surrender). This means that a real mix of assets can be held, from income to growth, without concern for ongoing reporting.

Tax-efficiencyOffshore bonds are tax-efficient in many ways, with the two key benefits being: Tax-free growth - as the bond is based in an offshore jurisdiction, there is no corporation tax to pay on the fund gains, and income gains are allowed to build up tax-free (apart from any withholding tax) – known as gross roll-up.

5% p.a. tax-deferred withdrawals - clients can access up to 5% of their premium each year (for up to 20 years) with no immediate income tax liability. Any unused allowance can be carried forward and used in future years.

FlexibilityOffshore bonds are a solution that divide the premium invested into policy segments to provide maximum future flexibility. The benefit this has is that clients can assign the individual segments to someone else by way of a gift, e.g. to their children, or into trust, without the need to encash the segments or create a chargeable event.

ControlOffshore bonds can help clients stay in control of their money, even if it is intended for others such as their children. They also provide clients with control over the timing of withdrawals and when gains are realised, helping to control their tax liability.

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Financial planning solutions The advice opportunities outlined in the previous pages could impact a growing number of your clients. The majority of these clients will have already maximised their annual allowances, such as pensions and ISAs, and will be looking for other solutions to help them achieve their financial goals.


Combination of solutions Having a combination of solutions can help provide better overall control, flexibility and tax-efficiency. Understanding how offshore bonds can benefit your clients will help you understand how they can fit as part of their overall financial plan.

Offshore bonds

Junior ISA ISA Collective

investments Pension Onshore bonds

Financial planning benefits for the client:

No lock-in period: clients can usually access money any time 7 7

No subscription limits: any amount can be paid in 7 7 7

Pass wealth to future generations: money can be passed on without encashing it and realising a gain

7 7 7

Gross roll-up: investment income/growth is not subject to tax as it arises (except any deducted at source that can not be reclaimed)

7 7

No tax reporting: no annual tax reporting regardless of dividends/interest received (unless there is a chargeable event)

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No CGT: funds can be switched without worrying about capital gains tax implications 7

Trust planning: a popular solution to be held inside a trust 7 7 7 7

IHT efficient: generally viewed as outside of the estate for IHT 7 7 7 7 7

Tax allowances that the client can use:Income tax personal allowance

7 7

Income tax personal savings allowance and savings rate band 7 7 7

Annual subscription allowance7 7 7

Annual CGT exemption7 7 7 7 7

Annual dividend allowance7 7 7 7 7


Offshore bond solutions in action


Advice opportunity using offshore bonds: You can help Fred build a nest egg for retirement.

An offshore bond can benefit from gross roll-up in a similar way that a pension can.

Unlike some investment solutions, such as Venture Capital Trusts, there is no lock-in period (to qualify for tax relief), and the offshore bond can align with the client’s risk profile, and hold a spread of assets.

An offshore bond can replicate Fred’s investment portfolio on his pension (perhaps outsource it to the same investment manager).

Fred can accumulate the 5% p.a. tax-deferred withdrawals each year. Fred can access this as a tax-deferred lump sum when he retires, or use it to provide a regular tax-deferred income. This may enable him to leave his pension untouched as it is protected from IHT.

Fred can choose when to access his money, and does not need to wait until he retires if his circumstances change, providing him with flexibility.

If Fred decides that he doesn’t need to access his offshore bond in retirement, he has the flexibility to gift it into trust, providing future IHT efficiency.

Case study I’m Fred. I’m 50, and plan to retire in 10 years.

Because I’m a high earner, I’ve been impacted by the tapered annual allowance.

I have used my pension allowance, and all other allowances, and have a surplus income of £20,000 each year to invest. I’m looking to save for my retirement and see what other options there are.

How offshore bonds can help in retirement planning


Advice opportunity using offshore bonds: You can help John build a nest egg for Eve which he stays in control of, and decides when and how much he gifts to his daughter.

Over the 10 years, the offshore bond will benefit from gross roll-up and John will not need to declare the details of the offshore bond on his annual tax return, making it simple from a reporting perspective.

When it’s time for Eve to go to university, as she is likely to be a non-taxpayer, offshore bonds become extremely attractive as segments can be assigned potentially free of income tax:

- Each time John passes money to Eve, by way of a gift assignment and subsequent surrender by Eve, the gain needs to be calculated (which, in simple terms, is the value of the segments being assigned on surrender, less the original value of the segments).

- If the gain is below Eve’s personal allowances then she will not have to pay any income tax. Eve will have access to her personal allowance, the 0% starting rate tax band for savings and the personal savings allowance.

As John has not surrendered the policy segments, he does not have anything to report on his tax return. It is also unlikely that Eve will need to report anything on her tax return unless the gain is significant (in excess of £10,000).

Case study I’m John, and this is my daughter, Eve.

I’m a higher rate taxpayer and have used all my allowances. I have a lump sum of £60,000 that I’d like to invest for my family’s future.

Eve may want to go to university in 10 years’ time and I’d like the option of being able to contribute towards these costs.

How offshore bonds can help parents save for their children


Offshore bonds in trust planning


Why are offshore bonds used in trust planning?

In trust planning, it is important to use the right underlying solutions to help the trust run efficiently.

Using offshore bonds inside a trust is a real financial planning sweet spot. Offshore bonds arguably deliver more advantages than other solutions held inside a trust, and here’s why:

Simple for trustees to administerAs offshore bonds are non-income producing, there is no income for trustees to report or tax to pay on an arising basis, so there's less administration for the trustee.

Tax-efficient distributionsDistributions to beneficiaries can be tax-efficient, for example, by using the 5% tax-deferred withdrawals, or assigning segments to a non-taxpayer prior to surrender (provided the gain is within their personal allowances, there could be no income tax to pay).

ContinuityUsing a ‘capital redemption’ offshore bond will provide continuity and greater control for trustees as it has no lives assured, so will not end on death. By not having to worry about who to put as the lives assured, the settlor can be reassured the bond will continue on their death.

ConvenienceGifting segments to a trust does not create a chargeable event for income tax purposes and the segments remain invested. In most cases, neither the donor nor the trustee(s) will need to declare it as income on a tax return.

Future flexibilityOur offshore bonds allow clients to assign segments into trust as and when required in the future. Clients can even assign segments to multiple trusts at different times.

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Here’s what happened to Annie and her family:Annie passes away. Annie didn’t place the £200,000 in trust, so it was included in her estate, and passes to Steve.

Steve eventually meets someone else, called Alison, and decides to remarry.

Steve then also passes away unexpectedly. Steve fails to leave in place a will or carry out any trust planning. Alison becomes the main beneficiary of his wealth. The money which Annie had wanted to pass to her children now passes to Alison, and William and Mia are disinherited.

How trust planning could have helped: Annie could have placed the £200,000 into a discretionary trust for her children.

In her letter of wishes to the trustees, she could have expressed her preference for how and when the money is passed to her children.

The trustees could have then passed the money to William and Mia to pay for university, and passed them the remaining funds for them to use as a deposit for their first homes.

Case study I’m Annie, and this is my family.

I’m happily married to Steve, and these are my two young children, William and Mia.

I’ve recently received a £200,000 inheritance which I want to invest for my children’s future.

The importance of trust planning


Quilter International’s range of trusts

Quilter International is renowned for its market-leading range of trusts. The Quilter International offshore bonds can be placed in

these trusts at no extra cost.

Choosing the right trust solution for your client depends on the amount of flexibility, access and IHT efficiency they need.

Trusts

1. Absolute trust

2. Discretionary trust – settlor included

3. Discretionary trust – settlor excluded

4. Best Start in Life Trust

5. Excess Income Trust

6. Discounted gift trust – bare

7. Discounted gift trust – discretionary

8. Lifestyle Trust

9. Loan trust – bare

10. Loan trust – discretionary

IHT efficientBeneficial for estate

planning to help reduce inheritance tax

FlexibilityThe settlor has

flexibility to change beneficiaries at any point

AccessCan provide the settlor with access to capital

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We have a trust planning hub available at www.quilterinternational.com/trust-planning which offers support in this area of financial planning, helping explain our range of trusts, and helping you select the right one for your client.

Trust companyWe can also provide you and your clients with access to an independent professional corporate trustee, to manage the trust on an ongoing basis.

With our sister company, Quilter International Trust Company, your clients can be reassured by the knowledge that a team of in-house experts is managing the trust on their behalf. Quilter International Trust Company can be used as trustee on all Quilter International trusts, with a straightforward application process, no set-up cost, and a competitive ongoing fee paid annually in advance.

The key benefits of choosing a corporate trustee include:

Corporate trustees do not die: continuity

Keep up-to-date with trust developments

Independent and impartial

Avoid personal/family conflicts

Ease of administration: dealing, form-filling, trust records

Trust support


Quilter International’s range of offshore bonds


Select Bond Portfolio Bond Wealth Bond

A simple, online, cost-effective way for clients to invest offshore; providing access to quality

investment funds at a competitive price.

An open-architecture solution for clients who may want access to a

broader asset range, multiple currencies, a discretionary fund

manager or an external custodian.

A high-net worth solution for clients who want to use a professional

investment expert (on a full discretionary basis) to access an even wider asset choice than is normally permitted within a UK bond, including direct equities.

Online only proposition, must be applied for and serviced through

Wealth Interactive.

Can be applied for and serviced online through Wealth Interactive.

Can be serviced online through Wealth Interactive.

Using Wealth Interactive, our award-winning online wealth management platform can create significant benefits for you and your clients. Ask us for more information or visit

www.quilterinternational.com/wealthinteractive

Minimum initial investment: £20,000

Minimum top-up: £500


Minimum top-up: £2,500


Minimum top-up: £5,000

Available from the Isle of Man:International Select Bond

Both Life and Redemption versions

Available from Ireland:European Select Bond

Life version only

Available from the Isle of Man:International Portfolio Bond


Available from Ireland:European Portfolio Bond


Available from the Isle of Man:International Wealth Bond


Available from Ireland:European Wealth Bond


Life assurance version: this is a whole of life policy set up on a single or multiple lives assured basis. The policy ends when the last life assured dies.

Capital redemption version: no lives assured so does not end on death, ends after 99 years (unless surrendered before then).

Choice of 3 currencies:

£, US$, €

Choice of 13 currencies including:

£, US$, €

Choice of 13 currencies including:

£, US$, €

Can outsource the portfolio management to an investment

specialist, but cannot use a third party custodian.

Can outsource the portfolio management to an investment

specialist, and can choose whether to select one or more third party

custodians.

Must delegate the portfolio management to an investment expert at outset, on a full discretionary basis.

Choose from a range of selected experts.


As part of Quilter, we aspire to be a purpose-led responsible business. Our core values drive our proposition and the way we do business, and shine through in the way we treat customers and support advisers. We are raising the bar in the international advice market, and continue to be industry leaders in the solutions we provide and the service we offer.

HeritageWe have a long-established heritage, dating back over 30 years.

Technical specialists: Our in-house technical support team has over 300 years of experience between them. They help keep advisers up-to-date on the latest technical and planning opportunities.

Face to face expertiseWe have a team of dedicated offshore specialists covering all regions in the UK, providing face to face support for advisers.

Award-winningWe have been consistently recognised through prestigious industry awards for our products, innovation and service.

INTERNATIONALPORTFOLIO BOND

INTERNATIONALADVISERGLOBAL FINANCIALSERVICES AWARDS ’18

We are best placed to help you and your clientsQuilter International is part of Quilter plc, a leading provider of advice, investments and wealth management both in the UK and selected international markets, managing £95.3 billion of investments on behalf of over 900,000 customers (as at 31 March 2020).

Business unit name goes here 19

Your next stepsLet us help you

Contact your usual Old Mutual Wealth consultant today to find out more.

Alternatively, contact your local offshore sales specialist. If you are unsure who they are, visit

www.quilterinternational.com/offshore-specialists

or explore in your own time by visiting our website: www.quilterinternational.com

Information is based on our current understanding of HMRC tax practice as at May 2020.

The value of investments may fall as well as rise and an investor may not get back what they put in.

All case studies used are fictional.

www.quilterinternational.com Calls may be monitored and recorded for training purposes and to avoid misunderstandings.

Quilter International Isle of Man Limited is registered in the Isle of Man under number 24916C.

Registered and Head Office: King Edward Bay House, King Edward Road, Onchan, Isle of Man, IM99 1NU, British Isles. Tel: +44 (0)1624 655 555 Fax: +44 (0)1624 611 715. Licensed by the Isle of Man Financial Services Authority.

Quilter International is registered in the Isle of Man as a business name of Quilter International Isle of Man Limited.

Quilter International Ireland dac is regulated by the Central Bank of Ireland. Registered No 309649. Administration Centre for correspondence: King Edward Bay House, King Edward Road, Onchan, Isle of Man, IM99 1NU Tel: +353(0)1 479 3900 Fax: +353(0)1 475 1020.

Registered and Head Office address: Hambleden House, 19-26 Lower Pembroke Street, Dublin 2, D02 WV96, Ireland. VAT number for Quilter International Ireland dac is 6329649S.

Quilter International is registered in Ireland as a business name of Quilter International Ireland dac.

All promotional material is approved by Old Mutual Wealth Limited. Old Mutual Wealth Limited is authorised and regulated by the Financial Conduct Authority. Financial Services register number 165359.

The rules made under the Financial Services and Markets Act 2000 (as amended) for the protection of retail clients in the UK do not apply.

19711/INT20-2256/January 2021

Exploring opportunities in offshore bonds · 4 Exploring opportunities in offshore bonds Growing advice opportunities More of your clients will be hit by Inheritance Tax Data from

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