Unlike onshore bonds where funds are subject to tax on all income and gains, any growth in an offshore bond is virtually free of tax. While this can increase the potential for higher investment returns, please remember that the value of your investment can go down as well as up and you might get back less than you paid in.

Any investment growth is virtually free of tax as small amounts of irrecoverable withholding tax may be payable on certain investment funds, as in some countries withholding tax is deducted from dividends and interest payments. If you invest in a net fund, where tax is paid on returns within the fund, where possible Standard Life International will reclaim tax within the fund and return this to you. We may not be able to reclaim tax if there are changes in HM Revenue & Customs practice. For more information please see the Key Features Document.

When the bond is finally cashed in, the amount of tax owing will depend on the tax status of the person who owns the bond at that time. This can help you control the tax you pay. For example, if you are currently a higher rate tax payer you can delay cashing in the bond until you are a basic rate or non tax payer - saving you tax on any investment gains. Also, if you want to give money to adult children or grandchildren, it can make sense to transfer the bond to them. They will then own and control the bond, and pay tax at their rates not yours - so more of the money can go where you intended.

You can use this approach with an Inheritance Tax (IHT)-effective gift trust too. The trustees can assign portions of the bond to your adult heirs, if that minimises the tax payable. Your financial or legal adviser can tell you more about whether a trust can help you save tax.

Taking tax-deferred withdrawals
You can take tax deferred withdrawals each year of up to 5% of the total payments made into your bond, up to a maximum of 100% of the total amount paid into the bond. If you do not use your allowance in a particular policy year, you can carry it forward to a future year.

Giving someone money without facing a huge tax bill

You might want to set aside some of your money to help your children and grandchildren with the major expenses in life. Like getting onto the property ladder, paying for a good education, getting that first car or affording a dream wedding. If you want to invest in an offshore bond for them now and then gift it to them in the future, you have the potential to minimise the tax both you and they have to pay. And you can decide exactly how much they get, and when.

All information on this website relating to taxation is based on our understanding of law and practice in Ireland and the UK at November 2009. The future tax position of the bond or your own tax position may alter.

This section applies only if the bond is owned by an individual or individuals resident for tax purposes in the UK. If the bond is set up under trust, or owned by a company or partnership, please refer to your financial adviser for more information.