Wealthy investors pour record sums into offshore bonds amid rising UK tax burden

Wealthy Britons are moving unprecedented sums into offshore bonds as they brace for higher taxes and seek more flexible ways to manage their wealth.

According to data reviewed by the Financial Times, around £10.5 billion was invested in offshore bonds in the 12 months to June, more than double the £5.1 billion recorded the previous year — marking a record-breaking surge in demand for overseas investment wrappers.

Financial advisers say the trend reflects the growing unease among higher earners over the UK’s increasingly complex tax landscape, with Ireland, Luxembourg, and the Isle of Man emerging as the most popular jurisdictions for new bond purchases.

The shift comes as the government continues to freeze income tax thresholds and reduce tax-free allowances, pulling more middle and high earners into higher tax bands.

At the same time, capital gains tax (CGT) for those in higher and additional rate brackets has risen from 20% to 24%, while the annual CGT exemption has been slashed from £12,300 to just £3,000 over two years. From 2027, some pension pots will also fall within the scope of inheritance tax.

With the Autumn Budget on 26 November expected to deliver fresh measures targeting “those with the broadest shoulders,” wealth managers report that clients are increasingly looking to defer or mitigate future tax liabilities through offshore structures.

“Some investors may be concerned about potential tax increases in the UK,” said Claire Trott, head of retirement and holistic planning at St James’s Place. “Offshore bond funds allow tax to be deferred while the investment remains within the bond. For others, it may reflect longer-term plans to relocate overseas.”

An offshore bond is structured as a life insurance policy that allows investors to roll up investment returns without paying tax until funds are withdrawn. Holders can typically withdraw up to 5% of the original investment each year for 20 years, tax-free — an attractive feature for those seeking income flexibility.

Tax is only due when withdrawals exceed the cumulative 5% allowance or when the bond is fully encashed. For retirees or those planning to access funds at a time when their income is lower, this deferral can lead to substantial tax savings.

Offshore bonds can also serve as a succession planning tool, enabling investors to transfer wealth to family members — such as children or grandchildren — who may face lower tax rates when the funds are realised.

However, experts warn that while offshore bonds can offer legitimate tax planning advantages, they are not without complexity or risk.

“Offshore bonds are being heavily marketed by some firms, but investors should be cautious,” said Helen McGhee, tax partner at Joseph Hage Aaronson & Bremen. “In most cases they don’t eliminate tax — they defer it — and that deferral can be compromised in certain circumstances.”

McGhee added that HM Revenue & Customs is already paying close attention to the surge in offshore bond activity. Under the Personal Portfolio Bond rules, investors could face an unexpected tax charge if their holdings are deemed too tailored or if benefits are taken prematurely.

“With increasing popularity comes increasing scrutiny from HMRC,” she said. “Investors must ensure their structures are compliant — or risk losing the advantages they were hoping to gain.”

For now, the surge into offshore bonds underscores how Britain’s affluent investors are adapting to a shifting fiscal landscape, seeking ways to protect their capital amid rising taxes and political uncertainty.

Yet with HMRC’s gaze sharpening and regulatory complexity deepening, the appeal of offshore bonds may ultimately hinge less on secrecy — and more on sound, transparent financial planning.

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Wealthy investors pour record sums into offshore bonds amid rising UK tax burden