Offshore Investment

[res]

Is anyone aware of an offshore investment bond currently being promoted which produces tax-free returns.

It works by investing say £100,000 in an offshore cash account/holding and paying the financial adviser say 5% commission which is mostly given back to the client. So say £4,000 of the £5,000 commission is given back to the client tax free.

After approx a year(when the amount invested has grown to roughly £100,000) the bond is surrendered and the client has their full capital returned.

AIG are amongst those promoting these bonds.On what grounds can this commission rebate be tax-free?

[Taxbar]

Sounds like a Tax fraud to me if this is the basis on which the bond is being sold?

Daniel Feingold
STP
info@stratax.co.uk

[bob.fraser@towrylaw.]

AIG is a reputable company.
This advice sounds a little confused.
When commission is rebated, it usually simply reduces the charges of the product (in this case a bond). So less of your fund is used to pay the advisor and the investment company. I don't know of any advisor who would take the commission, and then hand cash to a client.
I would suggest that you ask for the key features and an illustration.
You can email me if you wish for more information - please use bob.bairdfraser@btopenworld.com

[TaxationWeb@BritishA]

I'm not answering your query on how the bond works... but I will address the confusion as to how payback of commissions work.

Reputable IFAs who understand the maths do NOT charge commissions. Instead, they charge fees. Fees are annual rather than one-time only, and are usually based on assets under management. The fee is usually charged quarterly. That fee is between .25% and 2% of the assets under management, with an average of 1% per annum charged as .25% quarterly.

Meanwhile, some products are structured so as to only be available by commission. When such a product is recommended by a fee-basis IFA, the commission is returned back to the client, usually less the annual fee.

As it sounds like the IFA is keeping 1% for himself, that sounds like what's going on here.

Also, I agree with Bob. AIG is very reputable. It's the investment advice that's in question, not the product being recommended.

[JD]

I have seen this product.
They are relying on the IR statement of practice which states that rebated commission will not be taxed (SP 4/97).
Thus, if the investment makes 6%, this is taken as commission by the IFA. No tax arises on the disposal of the asset and when the IFA rebates the 5% commission, there is no tax to pay on the rebate.

Could make sense for higher rate taxpayers with lump sums to invest, provided the returns can be guaranteed.