Life Assurance Based Investment Bonds For Wealth Generation
For UK expats living abroad, dealing with complex cross-border financial circumstances, life assurance-based investment bonds can offer a flexible and tax-efficient solution for wealth planning. These instruments, popular across jurisdictions France, Portugal, and Spain, combine the benefits of investment growth with estate and tax planning advantages.
What Are Life Assurance Investment Bonds?
Life assurance investment bonds are long-term investment products structured under life insurance policies. Issued by international life insurance companies, these bonds allow policyholders to invest in a wide range of assets (e.g., funds, discretionary portfolios, or managed accounts) while also providing a nominal life cover element.
Though they may not be used for traditional insurance purposes, the legal structure of these policies can deliver significant financial planning benefits, especially for expatriates.
Tax-Efficient Investing For Expats
There are several key benefits for using Life Assurance Investments Bond, including;
Tax Deferral and Reduction
Investment bonds provide tax deferral on any capital gains generated within the policy. Taxes are payable only upon certain chargeable events, such as partial or full withdrawal, maturity, or the death of the life assured. This deferral enables efficient compounding over time and strategic planning around the timing of withdrawals. Country compliant Bonds for areas such as France and Portugal can also provide tax reduction and allowances when held for a set number of years.
Multi-Jurisdictional Flexibility
Expat-specific bonds can be portable, allowing you to move across jurisdictions without triggering tax charges. A bond issued under Irish or Luxembourgish regulation can remain valid if you relocate to another EU or the UK. For example, for the UK, you would simply convert the offshore investment bond into a personal portfolio bond and immediately gain the tax advantages associated with this product.
Succession Planning
Investment bonds can simplify inheritance and succession planning. All jurisdictions recognise "beneficiary nomination" within the policy, enabling wealth to pass directly to heirs without going through probate. In civil law countries (e.g., France or Spain), this feature can complement local forced heirship rules when properly structured. You can also take advantage of IHT allowances where appropriate, such as €152,500 per beneficiary in France.
Asset Consolidation and Professional Management
Through a single wrapper, you can access diversified portfolios and consolidate your holdings. This offers not only administrative simplicity but also professional portfolio management. This allows you to work with a local, regulated expert and have one overall investment strategy implemented.
Considerations Before Investing
Despite the advantages, investment bonds may not suit everyone. Here are a few considerations:
Better Alternative Products: If you live in a tax-advantaged location such as the Middle East, there is no advantage to utilising an offshore investment bond. An offshore investment platform will meet all your requirements at a lower cost.
Charges and Fees: These products often include layered fees, such as initial charges, annual management fees, and custody charges, which can affect returns if not carefully managed. Some bonds have early surrender penalties or limited access to capital, especially in the early years, if set up on a commission basis.
Regulatory Complexity: While bonds are often cross-border compliant, the tax treatment can vary widely depending on your country of residence.
Assurance Vie Case Study Example
Emma, a 53-year-old British national living in France, inherited £650,000 and seeks long-term capital growth without any short-term term income needs. Her primary goals are to grow the funds tax-efficiently and ensure that her three children inherit the money in the most tax-advantageous way.
After consulting with a financial adviser, Emma chooses to invest the inheritance in an Irish-domiciled Assurance Vie, a life assurance investment wrapper that allows for tax-deferred growth, flexibility in portfolio management, and a structured beneficiary clause.
This strategy ensures that her investments grow without annual taxation on capital gains, providing the potential for compounded returns whilst also reporting to the French Impot.
The Assurance Vie offers substantial succession planning benefits, as it allows Emma to designate her three children as beneficiaries directly, bypassing the need for probate. Under French inheritance laws, her children can receive up to €152,500 each tax-free, with any amounts above that subject to reduced taxation compared to standard French inheritance rates.
Additionally, the policy's flexibility allows Emma to adapt the contract if she moves to another country. In this way, the Assurance Vie not only meets her long-term growth objectives but also ensures a tax-efficient and simplified transfer of wealth to her children.
Offshore Bond Financial Planning
Life assurance-based investment bonds are powerful tools for global wealth planning, offering tax deferral, tax reduction, succession efficiency, and flexible investment access. For expatriates navigating multiple tax and legal regimes, these bonds can provide a centralised and compliant solution, so long as they are selected and structured with expert advice.
Expert Cross-Border Financial Advice
The Wealth Genesis is an independent, regulated financial advisory firm specialising in providing bespoke financial advice to expatriates worldwide. We offer a range of services tailored to the unique needs of expats, including investment management, retirement planning, and tax-efficient wealth transfer strategies.
