When it comes to long-term investing, the performance of your underlying assets is only part of the equation. The structure you use to hold those investments can have an equally significant impact on your final outcome, particularly once tax is taken into account.
Three of the most commonly used, and often only, investment structures used by British nationals are ISA’s, General Investment Platforms and International Portfolio Bonds/Private Placement Life Insurance.
Given that you can not contribute to an ISA as a non-UK tax payer, we will focus on the latter two as they are remaining options for expats who plan to move to the UK in future.
Both are effective. Both have advantages and drawbacks. And both can be appropriate depending on an individual’s personal circumstances and investment objectives.
However, when we shift the conversation from product features to tax treatment, the difference between these two structures becomes far more pronounced.
The better of General Investment Platforms and Portfolio Bonds is often debated at length among financial advisers and investment professionals. From an investment perspective, either structure can be used to access similar funds, portfolios and asset classes.
The key distinction lies not in what you invest in, but how and where those investments are held, and more importantly, how they are taxed when accessed.
The correct structure is rarely a blanket decision. It depends heavily on:
In most long-term planning scenarios, the final point is the most important. In the investment world, five years is considered short-term but many investors change countries, tax status, or income profiles over that time.
A common mistake investors make is structuring their investments based on where they are tax resident today, rather than where they are likely to be tax resident when they start drawing income or capital.
This is especially relevant for:
The same investment, held in two different structures, can result in dramatically different tax outcomes depending on where the investor is resident at the point of withdrawal.
For British taxpayers, either now or in the future, the decision becomes more nuanced.
The UK offers several valuable tax allowances which, when used correctly, can allow individuals to generate over £50,000 of income per year tax free.
Key allowances include:
The challenge is not the availability of allowances, but how investments are positioned to take advantage of them.
Most investors hold the majority of their non-pension investments on general investment platforms – a non-structured investment account that allows access to financial markets. This means any realised gains are subject to capital gains tax once the annual allowance is exceeded.
Even relatively modest portfolios can breach the £3,000 annual capital gains allowance, especially during strong market years. Once breached, further gains become taxable, reducing overall investment efficiency.
Platforms therefore tend to work best when:
International Portfolio Bonds are often overlooked, largely due to a lack of awareness rather than a lack of merit.
At a basic level, a Portfolio Bond is simply another structured investment account (an ISA falls into this category) for holding investments. The difference lies in how HMRC treats growth and withdrawals.
Individually held investments (such as equities, sovereign and corporate debt, OEICs, property funds, and unit trusts) can generate returns in their own right but have the disadvantage of being subject to immediate taxation in most countries where you, as an expatriate investor or future resident of
the UK, may live. These investments may also be subject to taxation when they are sold, in a similar way to capital gains tax (CGT) liability in the UK.
However, if the investments are held together within an offshore bond wrapper, liability to either income tax or CGT can be deferred, both in the UK and a number of other jurisdictions. This is known as ‘gross roll up’ or ‘tax deferral’.
Rachel is a 40-year-old UK expatriate working in the United Arab Emirates on a short-term contract (two to three years). She wants to build her wealth for future use and has an initial £300,000 to invest. She then wants to add to her investment with her annual bonuses.
Because Rachel isn’t sure how long she will be in the UAE and when she will return home to the UK, she wants to be sure that her money is invested in a tax efficient portable offshore investment product which is held within a developed, secure and highly regulated jurisdiction. Her adviser recommends an offshore bond as the ideal solution because it is portable, flexible, benefits from gross roll up and is held in a secure offshore environment.
If you spend part of your time living outside the UK (as a non- resident for tax purposes), any UK tax due when you return will be reduced based on the time you’ve spent abroad.
Any top-ups you make to your bond, whether as a resident or non-resident, will be deemed to be additional investments made at the start of the contract.
Tom is 55 years old and lived in Spain for 15 years. Ten years ago, he invested £100,000 into an offshore bond. He’s now back in the UK and one year after his return, he decides to surrender the bond for the new value of £200,000.
His investment gain is £100,000 but only a portion of the gain (while UK resident) is assessed for tax purposes, which is calculated as follows:
£100,000 (gain) x 365 (days as UK resident) = £10,000 3650 days policy in force
Whenever you decide to surrender your bond, the growth of your investment may mean that even after time apportionment relief (as described in case study 2) you still become either a higher rate or additional rate taxpayer.
Top slicing relief can help to reduce or remove this liability, by allowing you to assess your gain across the number of complete years that you have been resident in the UK.
Glenn and his wife had been living in Hong Kong for twelve years. Ten years ago, he invested £200,000 in an offshore bond. They returned to the UK five years ago to retire and Glenn has decided to surrender his bond, receiving £270,000.
His ‘chargeable gain’ is £70,000. However, this is reduced to £35,000 after time apportionment is applied (see case study 2 for further information on how this applies).
To calculate whether the higher tax bracket will apply to him, he simply needs to divide the chargeable gain (which is reduced by time apportionment relief) by the number of complete investment years he has been UK resident (£35,000/5 years) – meaning a £7,000 gain per year of investment (also known as a ‘sliced gain’).
Having a total annual income of £28,000 (other income) + £7,000 (sliced gain) = £35,000, which means he does not move into the higher rate tax bracket. Therefore, £7,000 tax would be payable (20% (UK basic rate tax) of £35,000).
Each policy year (up to a maximum of 20 years), you can withdraw, with no immediate UK tax charge:
Also, if you decide not to make any withdrawals within a twelve-month period, or take less than 5%, your unused 5% tax deferred allowance can be rolled forwards, so that you don’t lose it. The following case study illustrates how this works.
Neil is a 35-year-old UK expatriate based in Singapore who invests
£200,000 on 1 February 2015. He returns to the UK two years later, in March 2017 and requires a regular income from his investment.
Scenario A
He’s made no withdrawals during his two years abroad. He does not want to take the 15% unused allowance of £30,000 and wants to consider the options for regular fixed withdrawals.
He has a number of withdrawal options to choose from with the benefit of no immediate tax charge which could include:
Scenario B
He chose to cash in his investment in June 2016 before returning to the UK and reinvest at a higher level of £300,000 in October 2016.
This would mean that:
If you invest in an offshore bond, you can choose to gift the bond by assigning ownership to a third party. In this situation, the following benefits will apply:
George invests £100,000 into an offshore bond with 100 policies whilst working overseas in Oman. His investment grows to £150,000 and he then decides to assign one tenth or 10 policies to his granddaughter Olivia, who is studying at university in the UK. Olivia decides to surrender her 10 policies to pay for her university fees.
As a non-tax payer, she’s not liable to pay tax on the ‘chargeable gain’ of £5,000 (calculated** as £150,000 / 10 = £15,000 – £10,000 (original investment) = £5,000) as it’s within her personal income tax allowance.
In fact, as a student with no other income, the tax allowance that can be used before any tax is payable is up to £17,500 in 2017/18. This is made up of the personal allowance of £11,500, the starting rate.
Income tax band of £5,000, and personal savings allowance of £1,000.
These 5 features mentioned above provide far greater control over how and when tax is triggered and when utilised properly, results in large discounting in tax payable.
One of the reasons choosing between platforms and bonds is complex is that they are taxed under different regimes.
Due to gross roll-up, partial withdrawals, and relief mechanisms, the effective tax rate on a bond can be significantly lower than headline income tax rates.
The outcome also depends heavily on:
In many cases, the optimal solution is not choosing one structure over the other, but using both strategically.
For example:
However, transferring assets can itself trigger tax, so this must be carefully assessed.
When allowances, tax regimes, residency, withdrawal strategy, and long-term objectives are taken into account, it becomes clear why this decision is rarely straightforward.
Choosing the wrong structure can lead to unnecessary and avoidable tax costs over time.
For this reason, British taxpayers, whether current or future, should always seek advice from a UK-qualified financial adviser, such as Kevin Crowther, before restructuring or withdrawing investments.
Investment performance matters. But how your investments are held can matter just as much. Platforms and International Portfolio Bonds are both powerful tools. Used correctly, they enhance outcomes. Used incorrectly, they quietly erode returns through tax inefficiency. The key is not choosing what is popular, but choosing what is appropriate for your circumstances.
No. While often associated with larger portfolios, bonds can be effective for a wide range of investors, particularly those with international exposure or expats who don’t have the luxury of contributing to an ISA.
Yes. The underlying assets can be the exact same. The difference lies in taxation and withdrawal flexibility.
No. They are tax-deferred and tax-efficient, not tax-exempt.
Yes. Platforms can be more suitable for short-term investing or where capital gains allowances are being actively used.
Often, yes, but suitability depends on current and future residency, income, and withdrawal plans.
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