11. Onshore and Offshore Life Insurance Funds

Question 1

Onshore vs Offshore Funds

Answer 1

(Onshore policies treated as paid tax on basic rate, therefore only higher and additional have tax payable)

Offshore policies issued by LI companies based in jurisdictions which impose no tax on income or gains (gross roll-up and grows faster than onshore)

Growth may not be tax free due to irrecoverable withholding tax

Withdrawal in excess of 5% are liable to UK IT at highest rate

Question 2

Tax on Qualifying Policies

Answer 2

Proceeds from a qualifying policy are usually free of IT and CGT

However, where a policy is surrendered / sold within 10 years or 75% of policy term, 20% / 25% tax is payable by higher and additional rate tax players on surplus

Question 3

Qualifying Policy

Answer 3

• Premiums payable for 10 years
• Premiums paid at least annually
• policies after 6th April 2013, premiums are restricted to £3,600 per year across all policies

Question 4

Single Premium Policy

Answer 4

Therefore a SPP cannot be qualifying and is subject to IT on encashment

Life Assurance Bonds are SPPs

Basic rate tax payers incur no further IT

Investors can take up to 5% of the original premium each year until 100% is reached (20 years)

If allowance is not used can be carried forward

If investor takes more than this allowance and the gain moves up a marginal tax bracket, may incur further IT liability