Categories
Personal Portfolio Bond Tax for Expats Returning to UK
If you’re a British expat retuning to the UK, it’s likely that you’ve invested in a Personal Portfolio Bond (PPB) that’s capable of holding structured notes or direct shares – especially if you’ve received financial advice while overseas.
PPBs and offshore bonds are a common investment option for Brits living abroad, and are often recommended by overseas financial advisers.
But while they’re not a poor investment option, if your PPB is classed as ‘highly personalised’ by HMRC, it can lead to a serious tax issue once you return to the UK.
And this tax charge is not sympathetic. HMRC really doesn’t want you to hold these assets in the UK.
For the calculation, they’ll assume your bond has gained 15% value year-on-year since you opened it (they won’t check the actual performance with your provider, so even if it has lost money, they’ll still assume this gain).
Then, you'll be taxed on that total gain as income.
So if you’re a higher rate tax payer, that’s 40%, and it could even push you into the additional rate income tax bracket (45%) because it’s treated as earned income for that year.
If you’ve held your bond for ten years, for example, a 15% year-on-year increase is a very significant assumed gain, and we’ve seen clients receive five-figure tax bills on their PPBs.
So, it’s crucial to review your investments as soon as you’re back in the UK. Preferably with the help of a financial adviser familiar with these products and who specialises in helping returning expats.
To book a call with a specialist, get in touch today.
Note: The anniversary of your bond refers to the yearly date on which it was originally opened.
What’s the solution?
If you are holding structured notes or direct shares within your portfolio bond at the date of your bond’s anniversary when you’re back in the UK, you will likely face the tax charge. But even if you don’t hold these assets currently, and even if you never have held them, you could still face the charge.
This is because if your PPB is just capable of holding high personalised assets, such as structured notes, HMRC deems the bond as offensive.
This is why it’s so important to seek expert advice to fully review your investments.
Because the overall performance of structured notes are tied to their maturity date, it can sometimes be difficult to establish whether the tax penalty is worth the hit compared to a potential investment loss from selling early – this is where a financial adviser can help you with the calculations and what to do with the proceeds.
Remember: Even if you’ve never invested in structured notes or direct shares within your Personal Portfolio Bond, you could still be liable for a chargeable event.
Book a consultation with a specialist below.
Contents
What if I hold a Highly Personalised Bond within a QROPS?
What are structured notes?
Why are they so popular overseas?
What is a highly personalised offshore bond?
How does HMRC tax highly personalised bonds?
How do I know if my Personal Portfolio Bond is Highly Personalised?
Specialist Financial Advice for Expats Returning to the UK
List of Offshore Bond Providers, Overseas Pensions and Advisory Firms
What if I hold a Highly Personalised Bond within a QROPS?
You may also have structured notes or other highly personalised assets in an offshore bond within your QROPS (Qualifying Recognised Overseas Pension Schemes).
While HMRC’s wording is less clear on whether the tax penalty also applies to portfolio bonds within a QROPS, it’s not guaranteed that you won’t be penalised for this either.
Again, we recommend having a conversation with a specialist financial adviser to review your investments and give you peace of mind.
At the very least, it’s unlikely that these investments are in line with your risk profile and broader, long-term investment objectives, so they’ll likely need reviewing.
It’s also important to note that you cannot receive financial advice in the UK from an overseas adviser. So, if you’re still receiving advice from your old firm, we recommend getting in touch today for UK-based advice from an IFA that specialises in helping returning expats.
We can connect you with a specialist who will review all your overseas pensions and investments, as well as your UK assets, and work with you to create a holistic financial plan for your future back in the UK.
What are structured notes?
At a fundamental level, structured notes are debt securities issued by financial institutions. Their returns are linked to the performance of one or more underlying assets, such as stocks, market indices, commodities, or even foreign exchange rates.
This means that instead of receiving a fixed interest, the investor's return is determined by how well the underlying asset performs.
If the asset does well, the investor can enjoy potentially high returns; if it does poorly, the returns might be reduced or, in some cases eliminated.
However, many structured notes come with a safety net—a degree of capital protection—which ensures that even in a worst-case scenario, the investor will get back a certain percentage of their initial investment.
Why are they so popular overseas?
Many expats use a local financial adviser to handle their finances while they’re working abroad, and structured notes are a common recommendation from overseas advisers.
Structured notes generally have an attractive commission structure for advisers – this is a fee model that’s been phased out in the UK in favour of more transparent ongoing adviser chargers – so, they’re often the go-to recommended investment vehicle.
What is a highly personalised offshore bond?
A ‘highly personalised’ offshore bond, or Personal Portfolio Bond is one that, in HMRC’s eyes, contains a type of investment too specifically tailored to an individual's preferences.
Most commonly this is either structured notes, or direct shares. This includes UK shares listed on the London Stock Exchange, but doesn’t includes shares held within funds and collectives (such as Unit Trusts, Open Ended Investment Companies (OEICs) ETFs and Investment Trusts etc.).
Unlike standard investment products that are available to a wide range of investors, a highly personalised portfolio bond contains assets or investments that are chosen based on the unique requirements of one person, and these specific assets usually aren’t broadly accessible to the general public.
This also includes Regular Savings Bonds that you may have opened as a savings plan while working abroad.
How does HMRC tax highly personalised bonds?
Offshore bonds containing structured notes or direct shares are not viewed with the same tax leniency by HMRC as they might be in other jurisdictions.
HMRC's stance is that highly personalised bonds should not enjoy the same tax privileges as more conventional investments.
And the implications of this classification are stark. For British expats returning home, if their offshore bond is deemed highly personalised, they could face a substantial tax bill on the first anniversary of their bond upon their return to the UK – this is typically income tax charged on an assumed year-on-year 15% capital gain on the initial value of your bond.
This charge can also happen year-on-year until the offending assets within the bond are sold.
We have worked with expats in the past who have not realised their bond was highly personalised until they’d received a chargeable event certificate from HMRC in the post.
Overseas advisers aren’t familiar with UK tax laws, so they won’t typically give you warning or information on this – it’s simply not their jurisdiction.
This is where speaking to a specialist financial adviser is invaluable.
How do I know if my Personal Portfolio Bond is Highly Personalised?
You can either:
- Ask your current overseas financial adviser
- Ask a UK financial adviser when you return who is familiar with these products (contact us today)
- Check your policy documents or the online account for your bond
- Ask your bond provider
You can check the anniversary of your bond on your policy documents too to find out how much time you’ll have once you return.
We also provide a list of bond providers, overseas pension types and providers, offshore platforms and advisory firms later in this article so you can check for yourself whether you hold these assets.
Having said that, these are complex investments and we find that every client has a unique portfolio that needs bespoke attention – there is no catch-all solution to this problem due to the varying investment products, bond anniversary dates, income tax situations and various other factors.
Even if you feel confident that your bond is not highly personalised, we recommend getting a sense-check from one of our advisers.
Specialist Financial Advice for Expats Returning to the UK
While one of the primary challenges returning expats face is the risk of their offshore bond being classified as highly personalised, leading to potential tax implications, the broader financial landscape for British expats returning to the UK is not without its complexities.
Here are some of the key areas they can provide guidance in:
Inheritance Tax (IHT) / Estate Planning
A specialist can help structure your assets in a way that minimises your Inheritance Tax (IHT) liability. This can include setting up trusts, making tax-efficient gifts, making the most of tax-efficient wrappers, and understanding the nuances of domicile status and its impact on IHT.
Pension Consolidation
As a returning expat you may have pensions scattered across different jurisdictions. An adviser can guide you in consolidating these pensions, ensuring they're managed effectively and in line with UK regulations, potentially within a QROPS or a SIPP.
Wealth Management
A financial adviser can assess your entire financial portfolio, recommend rebalancing strategies, and ensure your investments align with your risk appetite, financial goals, and the UK's regulatory environment.
Tax Efficiency
One of the biggest challenges for returning expats is the UK's tax landscape. Advisers can provide you with strategies to structure assets and income streams in the most tax-efficient manner through ISAs, SIPPs, Bonds, VCTs and other investment vehicles and tax wrappers.
Separation and Divorce
Divorce can be complex for expats with assets in multiple countries. An adviser can help navigate the division of international assets, pension sharing orders, and ensure a fair financial settlement compliant with UK laws.
Property and Real Estate
Advisers can also guide you on the implications of owning property abroad, potential rental income, and the tax consequences of selling or buying property in the UK.
Insurance and Protection
As an expat you may have legacy insurance policies from different countries. Advisers can review these, ensuring they're still valid and relevant, and recommend any additional coverage needed in the UK from income protection and critical illness cover to comprehensive life insurance policies.
Currency and Foreign Exchange
With assets in multiple currencies you’re vulnerable to exchange rate risks. Advisers can offer strategies to manage these risks and even guide on optimal timings for significant currency conversions.
Contact us today to schedule a consultation with a specialist financial adviser dedicated to guiding returning expats.
List of Offshore Bond Providers, Overseas Pensions and Advisory Firms
Here is a comprehensive list of providers, platforms and firms that will typically facilitate highly personalised portfolio bonds, so you can cross-reference against your own investments.
Again, we stress the importance of sitting down with a specialist financial adviser who can review your investments in detail and advise you on the next steps.
Providers:
Bonds – Lump sum offshore bond / Offshore Regular Savings Bond
Friends Provident International (FPI)
- Premium – regular savings
- Reserve – lump sum
Utmost (formerly Generali)
- Vision – regular savings
Old Mutual International (Formerly Skandia & now Utmost)
- MSA / MPA – regular savings
- EIB / CIB – lump sum
RL360
Providence International (PLL)
- Horizon – lump sum
Hansard
SEB
Zurich
Pensions – QROPS / ROPS / delisted QROPS / international SIPP
- STM Malta / Gibraltar
- Sovereign
- Concept
- Trireme
- Momentum
- IVCM
- Overseas Trust & Pension (OTAP)
- London & Colonial
Offshore Platforms
- Moventum
- Platform One
Firms:
- Holborn
- deVere
- Globaleye
- Hoxton Capital Management
- Guardian Wealth Management
- Finsbury Wealth
- Blacktower Financial Management
- Professional Investment Consultants (PIC)
- Horizon Associates
- Skybound Wealth Management
.png)
