The tax advantages of the Reserve Investment Bond from Friends Provident International
In the UK and some European countries, investments in offshore bonds give a gross rollup. This means that apart from withholding tax deducted at source, they are not taxed on a yearly basis - but only when a taxable event takes place. A taxable event could be redemption or the death of the bondholder.
The switching of assets within a bond is not a tax event and therefore is a totally tax neutral activity.
Another advantage that is sold heavily, and yet often not even applicable, is that bonds like these allow you to withdraw up to 5% a year of the capital put into the bond. This 5% withdrawal is not included in your tax calculations. This can continue for 20 years, or until the full capital deposited is withdrawn.
In addition, if the full 5% is not used in any year, it can be carried forward to the following years. So, if an investor withdraws nothing for 10 years they can take a one-off 50% (of capital) withdrawal followed by 5% a year for the next 10 years, or their withdrawal allowance could be increased to 10% for 10 years for example.
Gains from life wrappers like the Reserve are not subject to capital gains tax - but they are taxed under special income tax rules in the UK.
Another advantage is that almost any type of asset can be held in an offshore bond, apart from physical real estate. However, it’s important to note that there may be some restrictions on what can be held in order to make the bond tax qualifying, depending on your country of tax residence.
The Reserve Investment Bond is not tax efficient for everyone, and the full extent and impact of its fees are not always made apparent during the sales process.