The following Personal Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:
The Offshore bonds and other foreign policies guidance note discusses what is meant by an offshore bond and a foreign policy. It explains the tax charges likely to arise, and how they should be reported on the individual’s tax return. That guidance note should be read first as the commentary below assumes familiarity with the concepts discussed in that guidance note.
This guidance note covers several more specialised areas: cluster policies, personal portfolio bonds, the treatment of some older policies and the interaction between the foreign policy rules and the remittance basis and temporary non-residence rules.
Some bonds are held, not as a single policy, but as a collection of small policies under a ‘cluster’ or ‘umbrella’. At the outset all policies are identical. They may also have the same number, apart from a sub-designation (for example, policies numbered XP234567/1–100, where numbers 1–100 identify the individual policies). The policyholder may also only have one policy document for all the clustered contracts.
Although UK insurers also issue cluster policies, offshore bonds are frequently sold in this form.
A common reason for having cluster policies is so a policyholder can fine-tune their disposals to make best use of their tax bands, or other reliefs and exemptions. For instance, in a year when there was some headroom under the higher rate threshold, the policyholder might cash in a small number of bonds and take the chargeable gain.
However, cluster policies need particular care. If the policyholder takes 5% per annum, it is important to check that they have taken 5% of each bond: sometimes the insurer simply cancels 5% of the total bonds, triggering maturity gains on all of them. This may be the result of incorrect or unclear instructions from the policyholder, or an administrative mistake by the insurer. The policyholder may wish to check what instructions were given.
Similarly, where there has been a disposal of more than 5%, the tax return preparer needs to check whether this
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