Peter Dodds, head of international marketing at Friends Provident International says that this is because by itself it is unlikely a rise in CGT would be enough to force such a change. However, he adds that combined with other factors it could be enough to tip individuals towards making such a choice.
“The combination of weak economic conditions in the UK and this and other tax changes could make the UK a less attractive place than before for certain individuals and groups,” he says.
Others point to the recent history of income tax rate increases as evidence that it will take a lot more to drive people away. David Gregory, head of institutional relationships at Canada Life refers to this: “When income tax rates rose to 50 per cent, there was much talk of high earners moving abroad. A rise in CGT is not such a motivation for moving abroad because you have to be resident abroad for five complete tax years before you escape the UK CGT net.”
Top performing life funds, 3-yr
Source: Financial Express Analytics
Instead, managers believe a possible increase will make the offshore market more attractive to investors.
VAM’s global sales director Nigel Watson says this is because it shows tax planning and tax litigation for offshore products in a better light. "It makes the personal portfolio bond base in the UK, and for anybody outside of the UK who is thinking of moving here, a far more attractive proposition rather than holding your investment on a direct basis,” he says.
“An increase in CGT will make the offshore portfolio of bonds a more attractive proposition in so far as it will highlight the benefit of the gross roll up. The offshore companies should be preparing themselves to market this message more aggressively.”
Gregory agrees stating anything that can shelter or deter taxation will become more popular. “Even more so if when they cash in their investment, the individual is paying a lower tax rate than before - because they have retired or moved abroad, for example. For these reasons, we expect that if CGT rates rise, individuals will look to move their offshore funds into a tax deferment wrapper such as an offshore bond,” he says.
Peter Dodds, head of international marketing at Friends Provident International points out that reducing CGT to 18 per cent in 2007 precipitated a significant drop in the sale of offshore bonds as investors regarded direct investment in funds or equities more attractive. “A rise in CGT could create a level playing field again and drive renewed enthusiasm for bonds in the UK market,” he says.
Dodd also believes the possible increase could be positive for UK and offshore life companies, especially the latter, where he says the attractions of offshore bonds have remained evident notwithstanding the CGT reduction in the last two years.
“The tax and other changes being pursued by the coalition government will also have a wider effect on how, and to what extent, individuals save,” he adds.
Neil Chadwick, technical marketing manager at Royal London 360 says: “Providing there is no adverse changes to income tax rates, Life companies will welcome any changes which bring parity to the higher rate of income tax and that of CGT."
“The disproportionate rates of tax over the last few years have been used by IFAs as a reason for not recommending offshore bonds despite tax being only one factor taken into consideration when recommending any investment strategy,” he says.
Martin Bamford, managing director at Informed Choice says if CGT is hiked in time for the start of the next tax year then more money could be invested in onshore and offshore investment bonds.
“Investing money offshore is essentially about deferring the payment of British taxes until the money or any income returns to the UK,” he says.
“Investors who do not need income immediately might consider this option in the hope that CGT will fall to more reasonable levels at some point again in the future, possibly once the budget deficit has been dealt with and taxes can once again fall.”