Investing money shouldn’t cost you money, but it invariably does. From fees charged for establishing an offshore savings account for example, to ongoing annual charges for managing an investment solution. We all see a certain percentage of what we invest eroded by costs.
However, there is a way to save and invest across a very diverse base of assets and not incur massive costs. If you hold elements of your financial portfolio within a wrapper-style structure, called a portfolio bond, you could save yourself a fortune in fees.
But that’s not the only way a portfolio bond can save you money, there are tax-saving possibilities available to many expats who use offshore portfolio bonds as we will now explain.
What Are Portfolio Bonds?
The financial services industry is awash with confusing and technical jargon. Usually you can find a decent definition for the various terminologies on the Internet. However, when it comes to portfolio bonds or wrappers we have to look to HM Revenue and Customs for an explanation.
HMRC’s definition of portfolio bonds is not 100% perfect for expats however, as it bases its examples on the likes of ISAs and SIPPs (i.e., saving and investment solutions often unsuitable for Brits living abroad).
Therefore, allow us to define a portfolio bond for you…
A portfolio bond is a structure that wraps your different investments and savings products under one account umbrella. Portfolio bonds are usually offered by life assurance companies, banks or financial services companies. They provide a single point of contact and management for you. They may enable tax efficiency, and they certainly enable investment and money management efficiency.
How a Portfolio Bond Can Save You Money
As investors we are repeatedly told that diversification is the key to building a balanced and successful portfolio. However, with diversification comes a number of issues.
- Investors have to undergo lengthy and annoying due diligence every time they want to open a new account
- Investors have to face charges across each element of their portfolio
- Investors have to keep control of what they have invested where and with whom
- Investors have to manage fees and annual charges to ensure they are not ultimately having too much of their portfolio eroded
If your financial adviser deems it appropriate for you to instead place all your different savings and investments within a wrapper – a.k.a. a portfolio bond – many of the above issues are removed.
- If you invest via a portfolio bond you only have to undergo due diligence once when you establish the bond. You no longer have to repeat this process every time you want to invest with a new company or move your money to a new account
- If you invest via a portfolio bond you can just send a simple fax transfer request any time you want to move your money into a different investment fund or savings account. You no longer have to complete a lengthy application process
- As you’re dealing with one company and one manager you only have to pay one lot of management fees and annual charges – thus you can save money if you invest via a portfolio bond (individual account fees may still apply on the different funds/accounts/structures within your portfolio bond)
- There are ways for expats to potentially save on or defer capital gains taxation through a well-structured portfolio bond
- Furthermore, there are ways for expats to potentially legitimately avoid inheritance tax charges through a portfolio bond and offshore trust structure
Could You Benefit from a Portfolio Bond?
If you’re an expat with at least £20,000 available to save and invest, you intend to hold at least 75% of that money in savings and investments for at least 5 years and you’re looking to benefit from: –
- Greater investment choice
- Maximum diversification for your money’s investment
- High levels of investment flexibility
- Potential tax-efficiency
- Administrative simplicity
- Low management charges
Then you might be able to benefit significantly from a portfolio bond.
However, you need to remember that the value of a portfolio bond, and any income you may take from it, can go down as well as up – and is not guaranteed. Additionally, any recommendation will need to be based on your own personal circumstances and wealth and tax status.
You should therefore seek qualified advice from an independent expat financial adviser who will be able to help you determine whether a portfolio bond is right for you.