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Offshore redemption bonds – helping to provide enhanced control and flexibility in IHT and generation planning

Offshore capital redemption bonds are growing in importance as advisers recognise the enhanced control and flexibility they can offer families, especially when it comes to inheritance tax and generation planning.

There are two types of offshore bonds; a whole of life assurance version and a capital redemption version. The key difference between the two is what happens on death:

Whole of life Capital redemption
A life assurance policy which will end on the death of the relevant life assured. A capital redemption bond is a contract for 99 years, unless surrendered earlier, and will not terminate on death.

 

Enhanced control for the policyholder’s representatives on death

Unlike a life assurance policy, a capital redemption bond does not terminate on the death of the relevant life assured. This can provide the following benefits:

  • Personal representatives have more control over timings and can decide what action to take and when
  • Policy will remain in force and assets will stay invested
  • It avoids a forced sale or crystallising any investment losses when markets are down
  • It avoids triggering an unexpected taxable event
  • The personal representatives decide when and how much to encash or assign to beneficiaries
  • Policy segments can be assigned to beneficiaries in a tax-efficient way

 

Simplicity in trust planning

With increased longevity and less certainty over future care costs, people aren’t sure how much money they will need in later life and may delay trust planning until further down the line. A key benefit of holding an offshore bond is the flexibility to place all, or some, policy segments into trust at a future point, depending on how circumstances change.

A capital redemption offshore bond can make future trust planning even simpler. By not having to worry about who to put as the lives assured and whether this will impact any gift with reservation rules, the settlor can be reassured the bond will continue on their death.

This also means there will be no sudden surprises for the trustees, and the underlying policy will continue, once the settlor dies, enabling them to manage the policy in accordance with the settlor’s wishes.

 

Old Mutual International Ireland dac launches two new redemption bonds in the UK

We have expanded our range of offshore bond solutions by adding a redemption version to two of our offshore bond solutions based in Ireland.

  • European Portfolio Bond, capital redemption version
    Designed for investors who want an offshore bond solution, with access to a broad asset range, a discretionary manager or an external custodian.
  • European Wealth Bond, capital redemption version
    Designed for high-net worth investors who want to use a professional investment expert and access an even wider asset choice than is normally permitted within a UK bond, including direct equities and bonds. The discretionary asset manager (DAM) will act on a full discretionary basis with no client influence and the bond is therefore not regarded as a ‘highly personalised portfolio bond' in the UK.

The availability of these new redemption solutions broadens the existing range of offshore bonds available to clients in the UK and demonstrates our continued commitment to enhancing and building our proposition in the UK market.

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