In short, I am not really a fan of reviewing offshore bonds as in many ways I see them as outdated, slow, and high cost. However, despite this, they can still have uses for the right person if structured right and purely fee-based which keeps costs relatively low.
In this, I will aim to go over a fee-based offshore bond that might be feasible for those looking for a tax wrapper.
What is it?
The International Portfolio Bond is a single premium whole of life offshore bond where, in the event of the death of the relevant life insured, the death benefit is 101% of the surrender value for lives insured under 74 years and 100.1% for lives insured over 74 years.
The bond is issued by Momentum International Insurance PCC Limited, registered in Guernsey.
Bond Set up
The International Portfolio Bond life insurance version provides flexibility for effective tax and estate planning to suit your needs.
The bond can be set up with single or multiple lives insured:
• Single life – there is only one life insured and when they die the bond comes to an end
• Joint life last death – there is no limit to the number of lives that can be insured on the bond, as long as there is an insurable interest, and it comes to an end when the last life insured dies.
Your bond can have an unlimited number of multiple contract owners. Your bond will initially be set up as a series of 100 separate policies that can be redeemed independently.
Minimum Amount
The minimum initial investment amount is USD 25,000 (or currency equivalent). You can add to your investment at any time subject to a minimum of USD 7,500 (or currency equivalent). Investments may also be subject to minimum levels applied by specific funds.
Charges
Charges cover the set-up and ongoing administration of your International Portfolio Bond and any commission paid to your adviser.
The bond’s product charges have two main elements:
Initial fee
Below USD 75,000 – 0.50%
Above USD 75,000 – 0.00%
Annual administration fee – per annum
First USD 200,000 – 0.65%
USD 150,000 – 0.60%
USD 150,000 – 0.55%
Above USD 500,000 – 0.45%
Transactional bank charges are incurred when buying or selling funds, with a charge of USD 50 (or currency equivalent) per cash investment and USD 35 (or currency equivalent) per switch instruction (not per fund) and per withdrawal to the contract owner’s bank account.
An adviser fee of up to 7% of the initial and any subsequent investments into your International Portfolio Bond may be charged. If you have chosen the Net Allocation option, this is payable in advance by us subtracting the fee before investing in funds. If you have chosen the 100% allocation option, the funded initial fees will be recovered from your investment monthly during the five year establishment period.
In addition, an annual adviser fee of up to 2% per annum of the value of your portfolio may be charged, calculated on a daily basis and payable monthly in arrears.
Cashing in the Bond
You can cash in or ‘surrender’ your bond at any time. You can also surrender independently any of the sub-policies that make up your bond at any time. Surrenders or part-surrenders within the first five years may incur an early encashment fee if you selected the 100% Allocation option for your bond.
What Happens if I Die
If a life insured has died and at least one other life insured is still alive, the bond will continue.
If the last remaining contract owner has died and at least one life insured is still alive, the bond will continue. Ownership of the deceased contract owner’s interest will transfer to the legal personal representatives of the contract owner’s estate and Guernsey probate may be required.
If all lives insured have now died, the bond will come to an end. The surrender value will be payable to the contract owners.
The Joint and Survivor Option will automatically apply if the bond is jointly owned by two or more persons except if a joint contract owner has expressly requested this option to be excluded in writing. The Joint and Survivor Option means that on the death of a contract owner, that deceased person’s contract interest shall accrue directly to the remaining contract owner(s) proportionately. If this option is excluded, then on the death of a contract owner, ownership of the deceased person’s interest will transfer to the legal personal representatives of the deceased contract owner’s estate and Guernsey probate may be required. The Joint and Survivor Option may be revoked at any time by anyone joint contract owner.
Taxation
We do not deduct tax in relation to any growth or income earned in your investment.
However, withholding tax may be deducted at the source of income arising from investments held in some countries, which cannot be reclaimed by us.
You may have a personal liability to tax depending on the tax laws in your country of residence and your own personal circumstances. Tax implications should be discussed with a professional adviser.
Protection
100% of your bond’s assets are held in trust with an independent Guernsey-based trustee, who in turn appoints Momentum Wealth International Limited (MWIL) as custodian. MWIL is licensed by the Guernsey Financial Services Commission and uses its nominee (MWI Nominees Limited) to hold the assets.
Your bond’s assets are therefore segregated from our business assets and you remain the beneficial owner at all times.
My Thoughts
Now we have gone through the jargon of the bond here are my thoughts on the bond. It is not a bad option and a bond that is fee-based and transparent is welcomed.
On a cost basis, it doesn’t compare with platforms in the sector but you are comparing apples with oranges and you would only look at this for tax mitigation over a platform.
The bad
- It has an initial 0.5% this really needs to be taken off.
- The establishment period although only 5 years still needs to be taken off.
- Can go into fee-paying funds.
The good
- The ongoing cost is fairly low for a bond and gets more competitive for larger amounts.
- More flexibility than most bonds.
- The protection and location.
- The Average
- Funds and currency options are pretty standard not a wide fund range but large enough to make a portfolio out of ETFs.
Bond Market Comparison: My Opinions
I would put it in the top 2 bonds right now, Investor Trust offers more flexibility, but has a larger TER and I would say that Momentum has a much better location than ITA Cayman Islands for me.
The biggest competitor would be Hansard 1Z which has a flat fee of 412 GBP and 1% upfront. This would be a lot more advantageous at least from a cost basis for larger investors.
Conclusion
Having a fee-based bond with a good level of flexibility is more than welcomed. However, if Momentum, could get rid of the initial fee and lower it down to 0.5% starting rather than 0.65% and from an advisor point (this is from what I have heard not personal experience) make the application easier, I could see this as the top bond option and potentially a game-changer in the market.
But, if I were to “Grade” it based on what I know would offer it a B+ for the fee and lowish cost and flexibility and protection and be happy to use it for the right person.
If you have any other questions or comments that you want to run by me, please email me at info@investmentsforexpats.com
