Beyond GIAs: how offshore bonds can help beat the tax trap
General Investment Accounts (GIAs) were once a straightforward solution for investors who had used up their ISA and pension allowances, or needed flexible access to a broad range of assets such as funds, shares, and bonds. Generous tax allowances meant they offered a practical way to manage excess wealth without triggering significant tax liabilities. But that picture has changed dramatically in the last few years.
Are your clients taking a tax hit on their GIA?
The Dividend Allowance has been cut from £2,000 in 2022 to just £500 from April 2024, while the annual Capital Gains Tax (CGT) exemption has shrunk from £12,300 to £3,000 over the same period. For higher-rate taxpayers, dividend income above the £500 threshold is taxed at 33.75%, while capital gains above £3,000 are taxed at 24% on most investments (24% on residential property). As a result, more clients are paying tax on GIA portfolios that would previously have flown under the radar.
And for those clients with diversified, income-generating portfolios, or those making regular fund switches as part of an adviser’s rebalancing strategy, the smaller allowances have created an administrative and financial headache. GIAs remain useful, but today it’s increasingly hard for portfolio growth to overcome the higher tax burden.
Without careful planning, tax liabilities, could hit clients from multiple directions.
Tax pressure is likely to increase
The Autumn Budget 2024 introduced another major tax trap. Under new rules, pensions will be brought within the scope of Inheritance Tax (IHT) for deaths occurring after April 2027, ending the long-standing exemption that made pensions a valuable tool for passing on wealth tax-efficiently. This change means clients who previously relied on pensions as a way to mitigate IHT exposure now need to rethink their estate planning. It could also lead to more investors using their pensions during their lifetime, potentially increasing reliance on other taxable investment vehicles such as GIAs or unwrapped portfolios.
There is also growing speculation of more tax tightening to come in the Autumn Statement 2025. Possibilities include freezing or lowering thresholds, restricting reliefs further, or aligning CGT rates with income tax thresholds. For advisers, this raises questions on how to balance income planning, estate planning, and tax efficiency. Without careful planning, tax liabilities, including income tax, capital gains tax, and now IHT, could hit clients from multiple directions.
Offshore bonds: regaining control over tax exposure
One potential solution is to incorporate an offshore bond alongside clients’ GIA holdings. While not a new concept, offshore bonds offer a range of tax advantages that complement other investment wrappers and can help manage rising tax exposure more effectively.
Here’s a reminder of what makes an offshore bond a valuable tax planning tool:
- No annual taxable events: Offshore bonds are non-income producing investments so, unlike GIAs, they don’t generate annual taxable events. Instead, clients can take an income of up to 5% of the original investment each year for 20 years, without triggering an immediate tax bill. This is particularly useful for retirement income planning, offering a steady, flexible income stream. It also gives investors control over the timing and scale of any tax liabilities.
- Tax deferral: Unlike GIAs, gains within an offshore bond are not subject to ongoing CGT. This allows the investment to grow uninterrupted, with tax deferred until a future event. For clients not needing income in the near term, this compounding can enhance long-term returns. Advisers can help clients choose when to realise gains, such as in lower income years or after retirement, to reduce the overall tax burden.
- No maximum investment: Offshore bonds also have no upper contribution limit – unlike pensions and ISAs – giving them flexibility for clients with substantial investable assets. And because gains aren’t reported annually, they avoid the paperwork and administrative burden associated with GIAs.
- IHT planning: Placing a bond in trust can support intergenerational planning and help mitigate future IHT liabilities. By using trusts, clients can ensure wealth is passed on in a controlled and tax-efficient manner.
How Casterbridge supports offshore bond solutions
At Casterbridge, we are one of few Discretionary Fund Managers (DFMs) with the necessary permissions and experience to manage portfolios within offshore bond structures. We’ll work in partnership with you to make sure portfolios are aligned with your client’s goals and wider financial plans. Here’s how we can help you and your clients:
- Discretionary management without CGT concerns: Our Discretionary Portfolio Service offers active investment management, including direct equities, with no capital gains tax reporting within the bond.
- Flexible investment strategies: Our total return approach supports long-term growth and income reinvestment, while enabling managed withdrawals when needed.
- Personalised service: You and your clients have direct access to a dedicated investment manager, available for portfolio reviews and annual meetings.
- Mandate flexibility: If your client’s objectives or risk profile change, we can adjust the portfolio without surrendering the bond or incurring charges or tax liabilities.
- An approach to suit different clients’ needs: For clients who don’t need a full DFM approach, our seven risk-rated Hardy portfolios offer professionally managed solutions from top global fund managers, all within the offshore bond.
Let Casterbridge do the hard work
To explore how we can support your offshore bond recommendations, please contact the Casterbridge team.
Important Information
This article is for information only and does not constitute advice or recommendation and you should not make any investment decisions based on it. The views and opinions of this article are those of Casterbridge at the time of writing and may change without notice. Any opinions should not be viewed as indicating any guarantee of return from investments managed by Casterbridge nor as advice of any nature. It is important to remember that past performance and the value of an investment, and any income from it, may go down as well as up and the investor may not get back the original amount invested.