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Tax efficiency · For UK residents

Offshore bond tax in the UK: one bill at the end instead of one every year

Budget of 28 October 2026: a further two points on savings income from 6 April 2027 were announced, taking the rates to 24%, 44% and 49% if enacted. Figures for 2027/28 on this page still use the Finance Act 2026 rates of 22%, 42% and 47%. What the Budget changes for offshore bonds.

Held directly, in a general investment account, a portfolio is taxed every year on its interest, its dividends and every gain the manager realises. Held inside an offshore bond, nothing is taxed on you while the money stays invested: the return compounds without UK tax, and income tax falls due only on a chargeable event, usually when you take money out. Over 30 years on £5,000,000 that can be worth having. How much turns mainly on the rate you pay when the money comes out, and the figures below show the point at which it stops working.

Hypothetical £5,000,000 over 30 years

Two rate bases side by side. The first holds 2026/27 rates for all 30 years: an illustration with frozen rates, not a forecast, and it leaves out the savings rates already enacted from 6 April 2027.

	2026/27 rates held	Enacted from 2027/28
Inside the policy, after tax on the £27.2m gain	£19.9m	£19.4m
Held directly, after all tax	£19.5m	£19.2m
Policy ahead by	£458,000	£174,000

4% income and 3% growth a year. Income taxed at a blended 42% in 2026/27 and 43.2% from 2027/28 (interest 45% then 47%, dividends 39.35% throughout), half of unrealised gains realised each year at 24%, a 0.60% annual policy charge, no top-slicing relief, and the gain taxed at surrender at 45% with rates held or 47% at the enacted rate. Change every figure in the calculator below.

By Eldar Edmond Grady, CEO, PPLI.com. Research checked 23 September 2026. Projections updated 20 October 2026 to show the rates enacted for 2027/28.

UK law for the tax year 2026/27, for a UK-resident individual who owns the policy personally. Rates that start later are labelled with their start date. Projections that run past 5 April 2027 are shown twice: once with 2026/27 rates held for every year, and once with the rates already enacted from 2027/28 (Finance Act 2026). The 2026/27 figures are correct for this year; holding them for 30 years is the simplification.

The short version

Thirty tax bills, or one

Taxed as you go

Interest is taxed at 20, 40 or 45%. Dividends above the £500 allowance are taxed at 10.75, 35.75 or 39.35% from 6 April 2026. Every gain the manager realises above £3,000 a year is taxed at 18 or 24%. The tax leaves the portfolio each year, and only what is left compounds.

Taxed once, at the end

Income and gains inside the policy are not taxed on you each year. They are reinvested gross. Switching funds inside the policy is not a chargeable event. Tax arises only at a chargeable event: a full surrender, a withdrawal above the 5% allowance, an assignment for value, maturity, or the death that ends the policy.

The price

The gain is then income, not a capital gain: taxed at 20, 40 or 45% (47% on savings income from 6 April 2027), with no basic-rate credit because the insurer is outside the UK. Top-slicing relief can soften it. And the whole deferral depends on the policy holding only permitted investments.

Six moments that decide whether the policy pays

The figures are this page's hypothetical case: £5,000,000, 4% income and 3% growth a year, income taxed at a blended 42%, CGT at 24% on half the unrealised gains each year, a 0.60% policy charge, 30 years, and the exit gain taxed at 45% unless stated, with 2026/27 rates held throughout. Each case also gives the figure at the rates already enacted from 2027/28: interest and the exit gain at 47% instead of 45%, dividend and CGT rates unchanged. In three of them the direct portfolio comes out ahead on both bases.

A mixed portfolio, cashed in after 30 years at 45%

Held directly

Year one alone costs £101,280 in income tax and CGT. Over 30 years about £7.4m of tax leaves the portfolio, and CGT on what is still unrealised takes £128,457 at the end. You keep about £19.5m.

Inside the policy

The policy grows untaxed to about £32.2m. Income tax at 45% on the £27.2m gain is about £12.2m, leaving about £19.9m: ahead by about £458,000. At the rates already enacted from 2027/28 the gain is taxed at 47%, the direct side pays 47% on its interest too, and the margin narrows to about £174,000 (£19.4m against £19.2m). Thin either way, and it exists only because the period is long.

A UK insurer's bond is taxed under the same chargeable event rules, but its fund pays corporation tax at a rate tied to the basic rate, 20% now and 22% from April 2027, and you are then treated as having paid basic rate tax on the gain. An offshore insurer's fund pays nothing, and the whole gain is taxed at your marginal rate. For a basic rate taxpayer who will stay one, the onshore credit covers the bill. For a higher or additional rate taxpayer who expects to take the gain at a lower rate, to give segments away, or to leave the UK, the offshore bond usually comes out ahead. The comparison with worked figures is on onshore vs offshore bonds; what the wrapper costs is on offshore bond charges; and where the bond sits next to an ISA, a general investment account and a pension is on offshore bond vs ISA, GIA and pension.

Your numbers: the same portfolio held two ways

Every field can be changed. The model is deliberately simple so you can check it by hand: it holds one income yield and one growth rate for the whole period and works the tax out twice: with 2026/27 rates held for every year, and with the rates already enacted from 2027/28 applied from year two. It prints its formula underneath. It is not a calculation of your own tax bill.

Your inputs

One portfolio, two ways of holding it

Capital investedIn pounds. Hypothetical

Income yield a year (%)Interest and dividends paid out each year, before tax

Capital growth a year (%)The rise in value on top of the income

Your tax rate on that income in 2026/27 (%)A blended figure you set. Interest at 45% and dividends at 39.35% for an additional rate taxpayer; 42 is roughly an even mix

CGT rate (%)18 or 24 for disposals from 30 October 2024. The £3,000 annual exempt amount is deducted each year

Share of unrealised gains realised each year (%)Your own disposals: selling, switching managers, rebalancing. 100 means every gain is taken each year

YearsWhole years until you cash in or die

Extra annual cost of the policy (%)A working assumption, not a quote: replace it with the insurer's charges

Income tax rate on the policy gain at 2026/27 rates (%)45 for an additional rate taxpayer in 2026/27, held for the whole period in the first column

Your tax rate on that income from 2027/28 (%)Used from year two in the enacted column. Interest at 47%, dividends still at 39.35%: 43.2 is the same even mix. For dividends only, enter the same figure as above

Income tax rate on the policy gain from 2027/28 (%)22, 42 or 47%, enacted for 2027/28 onwards (Finance Act 2026). Used in the enacted column if you cash in after year one

At the end

Sell everything or surrenderHeld until death

Top-slicing relief

Ignore it (use the rate above)Use my own figure after relief

Two rate bases, side by side

The first column holds 2026/27 rates for every year. That is a frozen-rate illustration, not the law for later years: the savings rates enacted from 6 April 2027 are in the second column, from year two. Neither allows for future Budgets.

	2026/27 rates held	Enacted from 2027/28
Held directly	£19,475,776	£19,217,055
Inside the policy	£19,934,042	£19,390,986
In favour of the policy	+£458,266	+£173,931

The detail below uses

2026/27 rates heldEnacted rates from 2027/28

Held directly, after all tax

£19,475,776

After income tax on the income each year, CGT on the gains realised each year and CGT on the gains still unrealised when you sell in year 30.

Inside the policy, after tax on the gain

£19,934,042

The policy grows untaxed to £32,152,803. The gain of £27,152,803 is then taxed as income at 45%, on full surrender.

Policy value before tax on the gain	£32,152,803
Chargeable event gain	£27,152,803
Income tax on the gain	£12,218,761
Difference at the end, in favour of the policy	+£458,266
Tax paid in year one if held directly	£101,280
Income tax and CGT paid along the way if held directly	£7,390,157
CGT at the end if held directly	£128,457
Gain divided by years (the top-slicing slice)	£905,093 a year

With 2026/27 rates held for the whole period, the policy is ahead by £458,266 after all tax. The slice of £905,093 a year is above the £125,140 additional rate threshold on its own, so top-slicing relief would not lower the rate much at this size.

The formula

Held directly, each year:
  income = value x income yield;  income tax = income x your income rate
    (enacted column: the 2026/27 rate in year one, the 2027/28 rate from year two)
  value = value + income - income tax + value x growth
  realised gain = unrealised gain x share realised;  CGT = (realised gain - £3,000) x CGT rate
  value = value - CGT  (the base cost rises by the realised gain and the reinvested income)
At the end, if you sell: CGT = (unrealised gain - £3,000) x CGT rate.  On death: no CGT.

Inside the policy:
  policy value = capital x (1 + income yield + growth - policy charge) ^ years
  gain = policy value - capital
  tax = gain x exit rate (or your own figure after top-slicing relief)
    (enacted column: the 2027/28 rate if you cash in after year one)
  after tax = policy value - tax

What the model leaves out, so you can judge it: the £500 dividend allowance and the personal savings allowance (worth a few hundred pounds a year at most to a higher or additional rate taxpayer), withholding tax deducted abroad on the underlying investments, losses, inflation, withdrawals, the 5% allowance, and inheritance tax. It treats the policy charge as a straight deduction from the return. It assumes the policy is not a personal portfolio bond.

Read the difference line first. With the defaults the policy is ahead by about £458,000 after 30 years if 2026/27 rates are held, and by about £174,000 at the rates already enacted: the 47% rate falls on the whole gain at the end, while the direct side pays the extra two points only on its interest. At 20 years it is behind on both. Then move three inputs and watch the answer swing: raise the income yield (interest-heavy portfolios favour the policy most, because interest is taxed at 45% every year held directly, 47% from 2027/28), cut the share of gains realised (a buy and hold investor gains little from deferral and loses the 24% CGT rate), and lower the exit rate. Most of the planning goes into the exit rate: a policy is worth most to someone who expects to pay a lower rate when the money comes out than while it grows.

Your own figures

What the deferral is worth in your case

In the question box, describe the portfolio in a few lines (roughly how much is interest, dividends and growth), the policy charges you have been quoted and your likely route out: surrender, segments over several years, a move abroad or holding until death. No tax reports at this stage. We reply by email with where the numbers fall on those facts.

How an offshore bond is taxed: ITTOIA 2005 Part 4 Chapter 9

There is no special UK regime for private placement life insurance. A policy issued by an insurer outside the UK is a foreign life policy, taxed under the chargeable event rules.

You are liable if you are UK resident in the tax year the gain arises and you are beneficially entitled to the policy, or you created the trust that holds it, or it is held as security for your debt (ITTOIA 2005 s.465). Nothing is charged while the policy grows. A gain is calculated only on a chargeable event: surrender of all rights, assignment of all rights for money or money's worth, maturity, a death that gives rise to benefits, and the part surrenders and part assignments that exceed the allowance (s.484). Moving money between funds inside the policy is not on that list.

The gain is savings income (ITA 2007 s.18(4)), so in 2026/27 it is taxed at 20, 40 or 45% (gov.uk income tax rates). From 6 April 2027 savings income is taxed at 22, 42 and 47% (gov.uk policy paper; Finance Act 2026). It is not a capital gain: the 18 and 24% CGT rates and the £3,000 annual exempt amount do not apply. Scottish rates do not apply either, because Scottish taxpayers pay the UK rates on savings income (gov.uk Scottish income tax).

Why there is no 20% credit

A gain on a UK policy carries a non-repayable credit at the basic rate, because the UK insurer has already paid tax on its fund (IPTM3810). A foreign policy's gain has none: HMRC says gains on foreign policies "do not attract a non-repayable basic rate tax credit" (HS321; IPTM3720). An additional rate taxpayer therefore pays the full 45% on an offshore gain, against 25% on top of the credit for a UK bond. That missing credit is what gross roll-up costs. From 6 April 2027 the UK-policy credit follows the new savings basic rate of 22%.

What you pay when you cash in

On a full surrender the gain is broadly what you receive, plus anything taken out before, less the premiums paid and less gains already taxed. Top-slicing relief then divides the gain by the number of complete years the policy has run (IPTM3830) and asks what rate that slice would bear on top of your other income; if the slice falls partly below the higher or additional rate threshold, the tax on the whole gain is reduced (s.535). It is available to individuals only, not to trustees or personal representatives (IPTM3820). Its limit is size: a £27.2m gain over 30 years is a slice of about £905,000, well above the £125,140 point where the additional rate starts. How the gain is calculated and how the relief works, step by step, is in chargeable event gains and top-slicing relief.

Withdrawals of up to 5% of each premium a year, cumulatively up to 100% over 20 years, are not taxed when taken (s.507). They are only deferred, because they come back into the calculation of the final gain. The detail, including the trap of a large part surrender, is in the 5% withdrawal allowance.

How the same portfolio is taxed when you hold it directly

The comparison only means something if the direct side is taxed correctly. These are the 2026/27 figures for an individual in England, Wales or Northern Ireland.

Type of return	Basic rate	Higher rate	Additional rate	Tax-free amount
Interest	20%	40%	45%	Personal savings allowance £1,000, £500 or nil
Dividends	10.75%	35.75%	39.35%	£500 dividend allowance
Capital gains	18%	24%	24%	£3,000 annual exempt amount
Offshore bond gain	20%	40%	45%	Personal savings allowance; top-slicing relief; no CGT allowance

Sources: income tax rates, personal savings allowance, dividend rates from 6 April 2026, CGT rates and allowance. The dividend ordinary and upper rates rose by 2 points on 6 April 2026; the additional rate stayed at 39.35%. Savings rates rise to 22, 42 and 47% from 6 April 2027, which makes interest held directly more expensive and the exit from an offshore policy more expensive by the same amount.

The rates matter less than two features of the direct side. Capital gains are taxed only when you dispose of something, so a patient investor already controls the timing, and pays 24% rather than 45%. And there is no CGT charge when someone dies: assets pass to the personal representatives at their market value on the date of death (HS282). A directly held portfolio kept until death never pays CGT on its unrealised gains. A policy that ends on death produces a chargeable event gain taxed as income. That rule alone decides the fifth case above.

The condition behind all of it

Everything above assumes the policy is taxed under the ordinary chargeable event rules. Below are the three cases where that assumption fails or works differently.

Choosing your own investments

If you, a person connected with you, or anyone acting for you can select assets outside the permitted categories, the policy is a personal portfolio bond. A deemed gain of 15% of the premiums and earlier deemed gains is then taxed every year, whether or not the policy grew (s.516; IPTM3650). The deferral on this page disappears. What the policy may hold, and how to use a manager appointed by the insurer, is on the page on investment flexibility; the full rules are in the personal portfolio bond rules.

Trustees as policyholders

Where UK trustees are taxed on the gain because the settlor has died or is not UK resident, discretionary trustees pay 45% on it, with no top-slicing relief (gov.uk trusts and income tax; IPTM3820). A settlor who is alive and UK resident is taxed on gains in a trust they created (s.465).

Arriving in the UK

The four-year foreign income and gains regime for new residents does not cover chargeable event gains: they are not on the list of qualifying foreign income (RFIG45100). The relief for a new arrival is time apportionment, which removes the share of the gain that relates to days of non-residence (s.528). Moving to, returning to or leaving the UK with an offshore policy works through the numbers. If you used the remittance basis before April 2025, or are arriving now, offshore bonds and the FIG regime sets out what does help.

What the policy does not do

These hold whichever insurer or jurisdiction you choose.

It is not tax-free. It defers income tax and then charges it at up to 45%, or 47% on savings income from 6 April 2027, on a gain that may include growth which would have been taxed at 24% as a capital gain held directly. The 2027 rates are already law. For how the 28 October 2026 Budget bears on offshore bonds, see the Budget briefing for offshore bondholders.

It does not remove inheritance tax. A policy you own personally is part of your estate like any other investment. The inheritance tax result comes from the trust and the gift around the policy, covered on the page on inheritance tax and succession.

It is not protected by the FSCS (unless the policy is written through a PRA-authorised UK branch). The Financial Services Compensation Scheme covers life insurers regulated by the Prudential Regulation Authority; insurers in the Isle of Man, the Channel Islands, Ireland or Luxembourg are not (FSCS). What each home jurisdiction offers instead is in if an offshore life insurer fails.

It is not hidden. The insurer reports the policy under the Common Reporting Standard and issues chargeable event certificates, and you enter the gain on the SA106 foreign pages. The steps are in reporting a chargeable event gain to HMRC, and what the insurer sends where is in privacy and reporting.

It does not suit every portfolio. Low-income, low-turnover equity portfolios, short horizons and an estate that will be inherited rather than spent are the cases where holding directly usually wins. For a portfolio that throws off interest taxed at 45% every year, held for decades by someone who expects a lower rate or a different country at the end, the deferral is worth a good deal. For the costs side of the comparison, read PPLI costs and economics.

Offshore bond tax questions

Is an offshore bond tax-free in the UK?

No. Income and gains inside the policy are not taxed on you each year, but when a chargeable event happens (a full surrender, a withdrawal above the 5% allowance, an assignment for value, maturity or the death that ends the policy) the gain is taxed as savings income at 20, 40 or 45% in 2026/27, and at 22, 42 or 47% from 6 April 2027. The advantage is deferral and control of timing, not exemption.

How is the gain taxed when I cash in?

The chargeable event gain is savings income under ITTOIA 2005 Part 4 Chapter 9 and ITA 2007 s.18(4). It is added to your other income for the tax year and taxed at your marginal rate, with no basic-rate credit because the insurer is outside the UK. Top-slicing relief may reduce the tax if the gain divided by the years the policy has run would fall partly into a lower band. The insurer sends you a chargeable event certificate and you enter the gain on the SA106 foreign pages. To run your own figures through the same method, use the offshore bond encashment calculator.

Why is there no 20% tax credit on an offshore bond when a UK bond has one?

A UK insurer pays tax on its policyholder fund, so a gain on a UK policy is treated as having borne basic-rate tax, which cannot be repaid. An offshore insurer is outside that system and its fund grows without UK tax, so HMRC gives no credit on the gain (HS321; IPTM3720). An additional rate taxpayer pays 45% on an offshore gain against a further 25% on a UK bond gain. From 6 April 2027 the UK-policy credit follows the savings basic rate of 22%.

Are the 5% withdrawals tax-free?

Not in the end. Each year you may withdraw up to 5% of each premium without an immediate charge, cumulatively up to 100% over 20 years (ITTOIA s.507). Those withdrawals are tax-deferred: they are added back when the final gain is calculated. Taking more than the cumulative allowance creates an immediate gain, which can be large relative to the money taken out.

Does top-slicing relief bring the rate down?

Sometimes. The gain is divided by the number of complete years the policy has run, and the relief asks whether that slice, added to your other income, would be taxed at a lower rate. It helps most when your other income is modest in the year you cash in and the slice is small. On a large policy the slice itself can exceed £125,140, so the relief does little. It is not available to trustees, personal representatives or companies.

Does capital gains tax apply to an offshore bond?

No. A chargeable event gain is charged to income tax, not CGT. The 18% and 24% CGT rates and the £3,000 annual exempt amount do not apply to it. That cuts both ways: growth that would have been a capital gain taxed at 24% held directly becomes income taxed at up to 45% inside the policy.

I am moving to the UK under the new FIG regime. Does it cover my bond?

It does not. The four-year foreign income and gains regime for new residents lists the types of qualifying foreign income, and chargeable event gains on life policies are not among them (RFIG45100). The relief that does apply is time apportionment under ITTOIA s.528, which reduces the gain by the share of days in the ownership period when you were not UK resident.

What happens to an offshore bond when I die?

If your death ends the bond, it is a chargeable event. The gain is worked out on the surrender value immediately before death, so any extra life cover is excluded, and it is taxed as your income in the year you die. If the bond pays out only on the last death and another life assured is still alive, or it is a capital redemption bond with no life assured, the bond carries on and passes to whoever inherits it, with no income tax charge at that point. A directly held portfolio is different: there is no CGT on death and the assets pass at their market value on the date of death (HS282). Both are part of your estate for inheritance tax unless held in a suitable trust.

Is an offshore bond better than an ISA or a general investment account?

They do different jobs. An ISA usually comes first: growth and withdrawals are free of UK tax, though only £20,000 can go in each tax year. A general investment account is taxed as you go, in 2026/27 at up to 45% on interest, 39.35% on dividends and 24% on gains when you sell. An offshore bond defers all of that and then taxes the whole gain as savings income, at up to 45%. From 6 April 2027 savings rates rise by two points, to 47% at the top, for interest and bond gains alike. The bond tends to come out ahead when the money stays invested for many years and your rate is lower when it comes out, in retirement or after a lasting move abroad. For a short holding, or a portfolio of growth shares you rarely sell, the account can cost less.

PPLI.com is not authorised by the Financial Conduct Authority and does not give personal advice. This is general information about UK law, not an invitation or inducement to enter into any insurance or investment contract. Policies issued by insurers outside the UK are not protected by the Financial Services Compensation Scheme.

Sources and authorities

The treatment described follows from the statute and HMRC guidance, read as at 23 September 2026 for the tax year 2026/27. It is not an opinion on any particular case.

ITTOIA 2005 s.465: who is liable for a chargeable event gain.
ITTOIA 2005 s.484: the list of chargeable events.
ITTOIA 2005 s.507: the 5% allowance on part surrenders.
ITTOIA 2005 s.528: time apportionment for periods of non-residence.
ITTOIA 2005 s.535, IPTM3820 and IPTM3830: top-slicing relief.
ITA 2007 s.18(4): chargeable event gains are savings income.
IPTM3720, IPTM3810 and HS321 (2026): no basic-rate credit on foreign policies; SA106 reporting.
IPTM3734: gains arising while non-UK resident; temporary non-residence.
ITTOIA 2005 s.516 and IPTM3650: personal portfolio bonds and the 15% deemed gain.
gov.uk: income tax rates 2026/27; personal savings allowance; Scottish income tax.
gov.uk: changes to tax rates for property, savings and dividend income (dividends from 6 April 2026; savings from 6 April 2027); Finance Act 2026.
gov.uk: Capital Gains Tax rates and allowances.
HS282 (2026): no CGT charge on death; assets acquired at market value on the date of death.
RFIG45100: qualifying foreign income under the FIG regime.
gov.uk: trusts and income tax; FSCS: what we cover.

Last updated: 23 September 2026. Our editorial standards describe how this material is checked and corrected.

Library · 5 articles

UK research on offshore bond tax

Tax on the gain

Chargeable event gains and top-slicing relief on an offshore bond

UK research · 2026/27

Withdrawals

The 5% withdrawal allowance: tax-deferred, not tax-free

UK research · 2026/27

Residence

Moving to, returning to or leaving the UK with an offshore policy

UK research · 2026/27

Investor control

The personal portfolio bond rules: why a bespoke PPLI portfolio fails for UK residents

UK research · 2026/27

Reporting

Reporting a bond gain to HMRC, and what HMRC already knows

UK research · 2026/27

All UK tax research.

Ask about your own numbers

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Author

Eldar Edmond Grady

CEO, PPLI.com

Checked against UK primary sources. The statutes, HMRC manual paragraphs and regulator pages cited are linked in the text so each statement can be read beside its basis.

Last updated: 23 September 2026
Editorial standards

Offshore bond tax in the UK: one bill at the end instead of one every year

Thirty tax bills, or one

Six moments that decide whether the policy pays

A mixed portfolio, cashed in after 30 years at 45%

The same portfolio, with the gain taxed at 40% on average

You leave the UK before cashing in

A growth portfolio you rarely trade

You die still holding it

You need the money after 20 years

Onshore or offshore: the same chapter, a different fund

Your numbers: the same portfolio held two ways

The formula

What the deferral is worth in your case

How an offshore bond is taxed: ITTOIA 2005 Part 4 Chapter 9

Why there is no 20% credit

What you pay when you cash in

How the same portfolio is taxed when you hold it directly

The condition behind all of it

Choosing your own investments

Trustees as policyholders

Arriving in the UK

What the policy does not do

Offshore bond tax questions

Sources and authorities

UK research on offshore bond tax

Ask about your own numbers

Tell us about yourself

How can we help?

Thank you