Savers ship cash abroad to escape Reeves’s tax raid

Taxpayers move money into offshore bonds to avoid higher capital gains rates

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Are you moving your money overseas to avoid tax changes? Get in touch: [email protected].
Savers are moving their money overseas to avoid Rachel Reeves’s punitive tax raids, leading wealth managers have said.
Clients are increasingly shipping their money abroad to avoid higher capital gains tax rates, as well as the slashing of allowances and frozen income tax thresholds, according to Quilter Cheviot and Waverton.
Offshore bonds allow savers to grow their investments without immediate capital gains or income tax. Investors can withdraw up to 5pc of the original investment annually tax-free, with unused portions carrying over.
Gains are taxed as income at marginal rates when withdrawn, and often benefit from lower rates by spreading out income over time.
Marco Malagoni, of Waverton, said a harsher tax environment for investors meant these wrappers had become more attractive for a wider range of clients.
He added: “Offshore bonds give control of who pays tax and when. You can shelter funds while earning and paying the top rate [of income tax], then draw down quite efficiently in retirement.
“One of my clients is an NHS doctor earning £100,000, and his wife is also a higher-rate taxpayer. They have a £2m portfolio and they’re putting some of this in an offshore bond.
“These [strategies] have historically been the preserve of high-net-worth people, but there is now a higher need for tax deferral.”
In her Budget last month, the Chancellor raised capital gains tax rates from 10pc to 18pc for basic-rate taxpayers and from 20pc to 24pc for higher-rate taxpayers. She also brought private pensions within the scope of inheritance tax from April 2027.
Investors were already feeling the pinch after the previous government slashed the threshold at which capital gains are taxed from £12,300 to £6,000 from April 2023, and then to £3,000 from April this year.
Meanwhile, the £20,000 Isa allowance has remained unchanged since the product was introduced in 2017. A saver maxing out their allowance each year would have been able to shield £56,550 more of their money since 2017 if the limit had increased with inflation, according to analysis by Leeds Building Society.
Income tax thresholds have also been frozen since 2020-21 and will remain so until 2027-28. The freeze has already dragged thousands of taxpayers into higher brackets as inflation pushes up wages.
Ian Cook, of Quilter Cheviot, said the Chancellor’s “punitive” tax changes have led to a “big increase” in the number of clients he is advising to funnel their money into offshore bonds.
He added: “One client prior to the Budget was going to keep his pension and spend that last, spending his Isa and other cash assets first.
“Now the recommendation is to move a lot of the money in cash and Isas into offshore bonds, and to spend his pension.”
Offshore bonds can be assigned to another person, meaning savers can take advantage of tax-free allowances.
Mr Cook said: “If you have a child over the age of 18 and they go to university or want to buy a first home, and there are taxable gains you want to take, you can draw the money from the offshore bond in their name.
“This means you can use their £12,570 personal allowance, plus £1,000 personal savings allowance, plus the £5,000 starting rate for savings – that’s £18,570 with no tax to pay. I have lots of clients doing this.”
This strategy “gives a lot of flexibility and control”, Mr Malagoni said.
With an offshore bond, investors can continue to invest in stocks and bonds, and make 5pc withdrawals of the original capital without incurring any tax each year. This is known as a “tax deferred withdrawal”.
Investments are able to compound more quickly as no taxes are deducted on the gains or income earned within the bond.
However, you may have to pay tax on an offshore bond if you withdraw more than the 5pc annual tax-deferred allowance, surrender the bond, or when a chargeable event occurs, such as the death of someone whose life was insured under the bond.
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