Life assurers have reported growing interest in offshore insurance bond “wrappers” and deferred interest accounts in an attempt to escape th...

Life assurers have reported growing interest in offshore insurance bond “wrappers” and deferred interest accounts in an attempt to escape the ambit of the European Union Savings Tax Directive, which came into force in July. Investors are also attempting to avoid paying a withholding tax or giving their home state access to account information by switching out of “European” offshore tax havens to jurisdictions such as Singapore and the Caribbean, which fall outside the reach of the directive. Concerns were raised in the investment community when it was initially realised that insurance products would be out of scope of the directive and insurance companies are very aware of the marketing potential for these products. Such is the interest that some insurance companies have already been approached by banks who are interested in applying bond wrappers to cash investments. Offshore bonds are exempt from the directive because all the assets in the bonds are held by the life company rather than by individuals. Interest in the bond rolls up gross, with no need to inform the tax authorities until the bond is cashed in. Life assurers already offering the bonds include Norwich Union, Prudential, Clerical Medical, Friends Provident and Royal Skandia.