Author: Elif Denef Seçgin
Changes in tax rules have led to an increase in offshore bond sales as investors seek to lower their tax bills in the UK.
Offshore bonds are becoming popular among British investors seeking to cut their tax bills and cope with fiscal tightening by Chancellor Rachel Reeves, who has increased capital gains tax, changed the tax regime for non-domiciled individuals, and included pensions in inheritance tax rules. At the end of June 2025, new investments into these bonds reached £10.5bn across all providers in a year, according to the Financial Times, compared with £5.1bn last year.
An offshore bond is an investment tool that is legally structured as a life insurance policy provided by a foreign entity such as Canada Life International. Because it is issued by a foreign entity, it allows investors to avoid paying taxes immediately. As long as an investor does not withdraw more than 5% of the original investment each year, there is no need to pay tax, as withdrawals are considered a return of capital.
The increase in capital gains tax — with the lower rate rising from 10% to 18% and the higher rate from 20% to 24% — along with the change in the tax regime for non-domiciled individuals, has incentivized the use of offshore bonds. To increase tax revenues, the UK government has also reduced the number of yearsrequired before foreign residents become liable for UK tax from 15 to 4. In other words, under the old regime, individuals whose permanent home was overseas could avoid paying British taxes for up to 15 years.
In addition, leftover private pensions will no longer be excluded from inheritance tax by 2027. For example, if a grandparent passes away before using all of their private pension, the remaining money can no longer be transferred tax-free after 2027. As a result, investors are seeking new ways to avoid higher tax payments, driving the surge in offshore bond sales.
The growing search for tax-efficient investment tools could, however, lead to stagnation in the UK economy. Even though the goal of these fiscal policies is to raise revenue to manage the government deficit, they may significantly reduce GDP growth and increase unemployment, according to the EY Item Club. Anna Anthony, Managing Partner at EY, argued that Reeves should “strike a balance between managing the deficit and measures that stimulate growth” to maintain economic momentum.
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