Whilst it may not be immediately apparent, these changes are positive news for the offshore life industry as they will make advisers think more about the investment needs of their clients.
We now have two rates of CGT, both of which are lower than the current rates of income tax. Whilst this may re-ignite the argument of direct ownership of collectives ‘still’ being more tax efficient than holding the same assets in an offshore bond, there are certain points of which we need to be mindful.
Firstly, the Chancellor has resisted pressure to reintroduce indexation and taper relief on capital gains. This, when combined with the new higher rate, creates conundrums for those undertaking ‘buy to hold’ strategies and those actively managing a portfolio of assets.
More tax?
In the first instance, there is no added benefit to holding the asset for a long period of time and in the second, those actively trading could now be paying significantly more tax.
Secondly, unlike Income Tax in respect of bond gains, there is no CGT ‘top slicing calculation’ to establish an average rate of tax where the gain pushes the tax payer into the higher rate threshold. It will either be 18% or 28%.
Finally, as trustees will now pay a flat rate of CGT at 28%, they could consider investing in offshore bonds and assigning policies in part or in full to basic rate taxpaying beneficiaries to reduce tax liabilities on gains.
Whilst the rate of CGT is lower, this does not afford the trustees the luxury of having an actively managed portfolio unless they want to be taxed each time an asset is sold.
The increase in VAT to 20% will result in the Isle of Man Government recouping a significant amount of the income lost due to the recent changes to the VAT sharing arrangement. This is good news for the Island’s economy, especially as the Isle of Man Government had already undertaken significant steps to reduce its expenditure.
Neil Chadwick is the technical marketing manager Royal London 360°. This article constitutes his own opinion and is not necessarily the opinion of Royal London 360°.
