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Affluent investors are increasingly reviewing how they structure, protect and pass on wealth amid growing uncertainty over potential tax changes that could be announced in the Autumn Budget, according to Rathbones, one of the UK's leading wealth and asset management groups.
The wealth manager says conversations with clients are becoming increasingly focused on the impact of potential tax reforms, including capital gains tax (CGT) and inheritance tax (IHT), with many reassessing whether their existing financial plans remain fit for purpose.
Earlier Rathbones analysis found that aligning CGT rates with income tax rates could significantly increase tax liabilities for investors. An additional-rate taxpayer making a £50,000 gain outside tax wrappers could see their tax bill rise from £11,280 to £21,150, an increase of £9,870. Higher-rate taxpayers could see tax on the same gain increase from £11,280 to £18,800.
The analysis also highlighted the potential impact of wider CGT reforms on families. The firm's analysis suggested that removing the current CGT uplift on death could leave beneficiaries facing a tax bill approaching £120,000 when selling an inherited property that had risen in value by £500,000 during the original owner's lifetime.
Isabella Gallier-Pratt, Senior Investment Director at Rathbones, said: "Uncertainty around fiscal policy does tend to prompt people to review their financial plans, but investors should be careful not to let tax considerations alone drive major financial decisions; as the saying goes, don't let the tax tail wag the investment dog.
"We've seen clients move from asking 'What should I invest in?' to asking 'How exposed am I if taxes rise again?' That's a noticeable shift in mindset. More people are reviewing how they invest, how they structure their assets and how they'll pass wealth to future generations. Budget uncertainty is acting as a catalyst for those conversations."
Offshore bonds increasingly part of discussions
Against this backdrop, Rathbones says offshore bonds are increasingly becoming part of financial planning discussions. Unlike General Investment Accounts, offshore bonds allow investments to grow without annual UK income tax or capital gains tax being applied year by year. Instead, taxation is generally deferred until a chargeable event occurs, such as certain withdrawals or surrender of the policy.
While offshore bonds have attracted increased attention amid Budget speculation, their appeal extends beyond potential tax changes. For investors who have exhausted ISA and pension allowances, offshore bonds can offer a combination of tax-deferred growth, greater control over when gains become taxable and estate planning flexibility that can support long-term wealth preservation.
By reducing the impact of annual tax drag, they can help support long-term compounding. Features such as tax-deferred withdrawals, policy segmentation and the ability to assign policy segments to family members can also provide additional flexibility when managing retirement income, funding future spending needs or supporting intergenerational wealth transfer.
Matthew Smith, Chartered Financial Planner at Rathbones, said: "Once ISA and pension allowances have been fully used, investors naturally start asking what other options are available. We're seeing offshore bonds come up much more often as part of our financial planning conversations with clients than they did a few years ago.
“For some investors, offshore bonds offer the ability to defer tax and have greater control over when gains become taxable which can support retirement planning, estate planning and intergenerational wealth transfer objectives.
"Importantly, offshore bonds aren't about avoiding tax. They are one option that can help build financial plans that can work effectively in a changing tax environment."
Offshore bonds are not appropriate for every investor. Their benefits are generally most pronounced for higher and additional-rate taxpayers who have already made full use of available ISA and pension allowances and are seeking additional planning flexibility. As with any investment structure, decisions should be based on long-term financial goals and personal circumstances rather than short-term tax speculation.
Isabella Galliers-Pratt adds: “Investors shouldn't tear up long-term financial plans on the basis of Budget rumours. The best plans are designed to withstand changing governments, changing tax regimes and changing market conditions. Reviewing your affairs ahead of a Budget is sensible. But any decisions should be driven by your long-term objectives rather than political headlines."
