Offshore bonds and other foreign policies

By Tolley

The following Personal Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Offshore bonds and other foreign policies
  • What is a bond?
  • What is a life insurance bond?
  • What is an offshore bond?
  • Foreign policies
  • Is it a qualifying policy?
  • Chargeable events and income tax - non-qualifying policies
  • No chargeable event
  • Calculating the chargeable event gain
  • Tax on the gain
  • Part-disposals
  • Chargeable event certificates
  • Self Assessment reporting

This guidance note explains what is meant by offshore bonds and foreign policies, the tax charges that are likely to arise, and how they should be reported on the Tax Return where the individual is resident and domiciled in the UK. See the Residence - overview and Domicile guidance notes.

What is a bond?

The word ‘bond’ has many meanings, even in a financial context. There are government bonds (also known as gilts), and corporate bonds. With these sorts of bonds, you lend money to the government or a company, usually with a guaranteed return after a fixed period. For more information, see the Gilts etc guidance note. National Savings Bonds are also a type of loan to the government. For more, see the National savings products guidance notes. You can also buy ‘bond funds’ which are collections of government and corporate bonds.

In the context of life insurance, bond means something quite different. Insurance bonds are a type of life insurance policy.

For the taxation of UK insurance bonds, see the Life insurance policies and Taxation of life insurance gains guidance notes.

This guidance note discusses the taxation of offshore bonds and other foreign life insurance policies. Some more specialist areas are covered in the Offshore bonds and other foreign policies - further topics guidance note, including cluster policies, personal portfolio bonds, the treatment of some older policies and the interaction between offshore bond rules and the remittance basis and temporary non-residence rules.

The taxation of life insurance is complex and these notes are only an outline. In particular, capital redemption policies and policies held in trust are not covered. For these, see IPTM1120, IPTM3410, IPTM7530 and IPTM3515 (capital redemption policies) and IPTM3250 and IPTM3260 (trusts).

What is a life insurance bond?

When an individual buys a bond, he pays a sum (the

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