Onshore or Offshore Bonds

We often refer to both when investing on behalf of clients, but which is best?
There is no straight answer to this, as each or both might be appropriate depending on individual circumstances. But the main differences are as follows:

Onshore Bonds are subject to UK corporation tax within the fund. However, when you
encash, you’re treated as having paid basic-rate tax already, so additional tax only applies if
you’re a higher or additional-rate taxpayer. These are covered by the UK Financial Services
Compensation Scheme (FSCS).

Offshore Bonds Funds grow gross of tax (no UK corporation tax within the fund), which may result in different growth outcomes compared to Onshore Bonds. When you withdraw, gains are taxed as savings income at your marginal rate (20%, 40%, or 45%). Please note from a consumer protection perspective that offshore bonds are not generally covered by FSCS.

Both types of Investment Bond allow tax deferred growth, with up to 5% per annum of the original investment amount being withdrawn without immediate tax liability, and gains are only taxed when a
chargeable event occurs (e.g. surrender or death). 

Also, both types of Investment Bond have a valuable feature which allows the investor to assign some or all of the arrangement to, for example, another member of the family. This can be really helpful in reducing the tax payable on growth when encashing.

By Andy Robinson | June 2026

The information contained within this communication does not constitute financial advice and is provided for general information purposes only. No warranty, whether express or implied is given in relation to such information. FMIFA or any of its associated representatives shall not be liable for any technical, editorial, typographical or other errors or omissions within the content of this communication. You should be aware that the value of an investment can fall as well as rise and that investors may not get back the amount they invested. The value of any tax relief will depend on the individual circumstances of the investor. The Financial Conduct Authority does not regulate tax advice. Rules and regulations for the protection of investors under the UK Financial Services and Markets Act 2000 may not apply to offices located outside of the UK and investors may not be able to benefit from the provisions of the UK Financial Services Compensation Scheme.