Offshore bond tax calculator

An offshore bond's fund suffers little or no tax internally, so the gain rolls up gross year to year. On full surrender, death, maturity or an excess event the whole chargeable-event gain is charged to income tax as savings income of that year — there is no credit against the real liability for tax paid inside the fund, because effectively none was (the s.531(1) deemed credit exists only inside the top-slicing relief calculation, below). The gain sits above other income but below dividends in the band stack (inside the top-slicing relief calculation it is placed above dividends), and counts towards adjusted net income for the personal-allowance taper.

TAR can apply to qualifying offshore and onshore policies. Whether it is due can depend on relevant residence, beneficial ownership or assignments, rights held as security, and trust or estate history, so UK residence throughout the policy term alone does not settle the question. This calculator does not calculate TAR and is limited to gains for which no TAR is due: with nothing ticked it assumes that, and says so beside the figure.

A gain that built up over several years is charged in a single year, which can push it through the higher or additional-rate threshold. Top-slicing relief compares the tax on the whole gain with the tax on the annual-equivalent “slice” (the gain divided by the complete policy years) scaled back up. The personal savings allowance and starting-rate band are recalculated at the notional slice income for gains from 6 April 2021 (the post-2021/22 IPTM3820 recalculation). The deemed basic-rate credit does not reduce the real liability on an offshore bond, but ITTOIA 2005 s.531(1) preserves it “for the purposes of calculating relief under section 535” — so inside the relief calculation it is deducted from both the total liability and the total relieved liability (IPTM3830), exactly as for an onshore bond.

The gain is computed the same way for both bond types, and both get top-slicing relief. The difference is the deemed basic-rate credit an onshore bond carries against the member's real liability and an offshore bond does not: it reflects tax paid inside the onshore fund (ITTOIA 2005 s.530). For the same gain and the same taxpayer, the offshore tax is therefore usually higher. The gap is often close to the credit amount, because the credit is set against the year's whole income tax after top-slicing relief, including tax on other income; it is smaller, or nil, only where the credit is more than that tax, because the excess cannot be repaid (ITTOIA 2005 s.530(2)). It can also be smaller or larger where the personal allowance is set against income differently (ITA 2007 s.25(2)) or, with dividends, where the gain sits in a different place in the band order. The calculator shows the extra tax the gain causes and never shows less than nil, so where the onshore credit also covers tax on other income, the onshore figure shows nil and the difference between the onshore and offshore figures is smaller than the real one. That is the trade-off for gross roll-up while the bond is held.

One qualification that is easy to miss: s.531(1) is an express carve-out applying the s.530(1) deemed credit to offshore and foreign policy gains for the purpose of calculating relief under s.535. So Steps 1 and 4 of the relief computation carry the credit for an offshore bond too, and the top-slicing relief figure is identical to the equivalent onshore case — the credit simply does not carry through to the real liability. The credit is restricted under s.530(3)–(5) to basic rate on the gain (or slice) less any personal allowance set against it, so it is not a flat 20% of the gain.

Top-slicing relief is available only where an individual is liable on the chargeable event gain, and the personal allowance, personal savings allowance and starting rate for savings are individual reliefs too. Where UK trustees of a non-charitable trust are the chargeable persons the gain is charged at the trust rate with none of those reliefs, apart from the trust’s low-income rules: up to 2023/24 the first £1,000 of the trust’s income, gain included, is charged at the basic rate (ITA 2007 ss.491–492), and from 2024/25 nothing is due where that income is £500 or less, both amounts being lower where the settlor made other settlements (up to 2023/24 any that existed in the year; from 2024/25 only those with income charged at trust rates in the year, even if within their own tax-free amount, with some kinds of trust not counted) (s.24B). On the no-TAR-due basis stated above, a £50,000 offshore gain over 10 complete years in 2026/27 is £22,500.00 on trustees against £6,286.00 for an individual with no other income. The calculator asks who the chargeable person is and shows no figure for your own case until you answer (the worked example on load is an individual's). While the person who created a non-charitable trust (other than a bare trust) is alive and UK resident, the gain is taxed on that settlor as their own income, whether or not they can benefit (s.465(3)), so discretionary gift and discounted gift trusts are normally taxed on the settlor: choose “An individual” in the calculator and enter the settlor’s other income. UK trustees of a non-charitable trust are normally taxed only where the settlor died in an earlier tax year or is not UK resident (s.467; IPTM3230).

Some individual cases need additional facts or separate workings. Check the limits below before relying on the relief or tax figures.

• Savings and dividends. The tool treats all the other income you enter as non-savings income, such as salary, pension or rent. It has no field for savings interest or dividends, which change the savings allowances, the starting rate for savings and where the gain sits in the bands. The top-slicing relief calculator takes them separately, though on some onshore gains, including any with dividends in 2022/23 or 2026/27, it cannot yet price the result and says so.
• Pension contributions and Gift Aid. No field for personal pension contributions paid with relief at source, or for Gift Aid: the figures assume there were none. Both extend the basic and higher rate limits for the tax due, and pension contributions extend them inside the relief calculation too. The top-slicing relief calculator takes both, though on some onshore gains, including any with them in 2022/23 or 2026/27, it cannot yet price the result and says so.
• Other gains in the same tax year. The tool works on one gain. Where the client has two or more chargeable event gains in the year, the relief is worked out on all of them together (s.537); the bond workbench does that for onshore gains, offshore gains or both, except in 2026/27, when it can combine offshore gains only.
• Income left out of the relief calculation. A termination payment taxed as employment income under ITEPA 2003 s.403, and lease premiums and similar receipts taxed as UK property business profits, are left out of total income inside the relief calculation but still count for the tax due (s.535(5)). The tool uses the same income for both, so it cannot apply that.
• How the complete years are counted. The tool uses the number of complete years (N) you enter and does not count it. On a later part surrender or assignment N usually runs from the previous such event (s.536(2)). An offshore bond issued before 6 April 2013 still runs from the start of the policy, unless on or after that date it was varied to increase its benefits (exercising a right counts), assigned to the client or into or out of a trust (HMRC IPTM3731 counts both), or used as security for the client’s debt (FA 2013 Sch 8 para 7(2)-(3)); then N runs from the previous event as usual. Where the bond was issued in place of, or under an option in, an earlier policy it is counted from the earliest related policy (s.536(4)). Take N from the certificate.
• Scottish taxpayers. For an individual, choose Yes in the calculator. The gain and top-slicing relief remain available. Net additional tax is shown only where the calculation provides the reviewed evidence needed to confirm it; otherwise it is withheld for a separate Scottish tax calculation. The UK-trustee figure uses trust rates and is not affected.