Wealth protection strategies for high-net-worth people

Offshore investment bonds: a flexible tool for tax deferral

Offshore investment bonds are a form of life insurance policy issued by non-UK insurers, used primarily as a tax planning vehicle.

Despite the name, they're not exotic or evasive. In fact, they're a well-established way to defer tax, control the timing of gains, and manage personal tax bands.

How they work

You put in a lump sum (your "premium") and the bond grows in value inside the wrapper, without immediate UK tax.

Gains aren't taxed as they arise, but instead when something called a "chargeable event" occurs. That could be cashing in the bond entirely (a full "encasement"), certain withdrawals, or changes in ownership.

One of the key features is the ability to withdraw up to 5% of your original investment per year without triggering an immediate tax bill – a personal allowance that rolls over if unused.

So, if you take nothing in year one, you've got 10% available in year two.

But let's be clear: this isn't a permanent tax break. It's a deferral, not an exemption.

When the bond is eventually cashed in, HMRC works out the gain by taking the final value, subtracting your original investment, and deducting any 5% withdrawals you've already taken. What's left is taxed as income in the year the bond is cashed in.

Why use one?

Unlike regular investments where selling triggers capital gains tax (CGT) straightaway, offshore bonds let you control when and how you pay tax.

With a bond, you can take 5% of your original investment each year, for up to 20 years, without immediate tax. You're not taxed again on those withdrawals, as they're treated as a return of capital.

When tax does kick in, the gain is taxed as income rather than capital, which can mean a higher rate than you'd pay on shares or funds. But, the idea is to cash in at a time when your income is lower (for example, in retirement), so you land in a gentler tax band and soften the hit.

Never cash it in? You might never trigger a tax bill in your lifetime. That's not really the goal, though – they're mainly about delaying tax, smoothing income, and choosing the timing to your advantage.

It's sometimes possible to assign a bond to a spouse or child without triggering a chargeable gain, potentially making use of their lower tax bands. And in certain cases, if you become non-UK resident before cashing in, the gain may fall outside UK tax altogether.

That said, you'll need professional advice before trying anything that relies on tax residency or treaty benefits.

All chargeable gains must be declared to HMRC via self-assessment. No exceptions.

Example scenario

Samira, 55, is a higher-rate taxpayer who invests £200,000 into an offshore bond. Each year, she withdraws £10,000 (5%) to cover living costs. 

These withdrawals don’t trigger immediate tax, as they’re treated as a return of her original capital. Meanwhile, the bond continues to grow in the background without UK tax being applied year by year.

At 65, Samira retires and her income drops into the basic-rate tax band. She decides to cash in the bond. The gain is taxed at 20% instead of the 40% she would have faced if she had encashed while still a higher-rate taxpayer.

Common pitfalls of offshore investment bonds and what to avoid

• Go above the 5% withdrawal limit in a year? You trigger a chargeable event and an immediate tax bill.
• Take a large early withdrawal? You might cause a "wholly disproportionate gain" - a scenario so lopsided HMRC may allow a recalculation, but it's best not to rely on that.
• Cash in the bond while still in a higher-rate tax band? You could be looking at 40% to 45% tax on the gain.
• Told about a scheme involving loans or "income recycling" from the bond? HMRC treats these with suspicion, and if it sounds like you're getting your own money back without tax, it probably won't end well.

Finally, watch out for fees, and do research on the jurisdiction where the bond is held. You'll want to stick with reputable providers in stable, regulated locations.

Discretionary trusts: long-term control, with a side of paperwork

A discretionary trust is a legal wrapper used to hold assets for the benefit of others (usually family) without handing the keys over directly.

The trustees decide who gets what, when, and how much. That's the "discretion" part.

They're often used to reduce the size of someone's estate for Inheritance Tax (IHT) purposes, if done properly. Once assets are inside a discretionary trust and you've paid any entry charges due, they're (usually) out of the estate, meaning they don't face the standard 40% IHT hit when the original owner dies.

But this isn't a free ride. Trusts have their own tax regime, and they've got more bite than a ferret in a trouser leg.

How they work

Put assets into a new discretionary trust and you'll usually face a 20% IHT charge upfront on anything above the £325,000 nil-rate band.

This is called the "entry charge". It's classed as a chargeable lifetime transfer. Die within seven years, and the same gift is reassessed at the full 40% death rate, though HMRC gives credit for the 20% already paid.

Once the trust is up and running, it faces small periodic charges and exit charges. This is the trade-off for keeping wealth out of the estate.

In practice, if managed properly, many trusts end up paying 3-6% IHT once a decade; far below the 40% most estates face on death.

CGT also applies. Trusts get a lower annual CGT exemption than individuals and pay 20% or 24% on gains, depending on the asset type. There's no automatic "step-up" in value every 10 years or at distribution, so trustees need to plan disposals carefully.

Any gain is still based on the original purchase price, not the value when assets are passed on.

That can mean a hefty tax bill if values have climbed over time (e.g. Uncle Steve's Apple shares from the year 2000 have gone from £0.14 a pop to over £150, and the trust is taxed on the full gain since purchase, not just the recent rise).

Income, meanwhile, is taxed at top rates: 45% on interest and rent, 39.35% on dividends, after a measly £500 exemption.

Unless income is paid out to beneficiaries (who then pay tax at their own rates), the trust takes the hit. Where possible, trustees often mandate income to lower-rate taxpayers in the family to reduce the overall burden.

Why use one?

Despite the admin and tax hurdles, discretionary trusts give families control, flexibility, and a buffer against a full 40% IHT charge.

You can set terms (education, housing, support), pick the trustees, and keep wealth from being contested in a will or squandered on your niece's plan for a performance art piece involving 400 litres of custard and a live goat. It's wealth protection with a lockbox and a rulebook.

Example scenario

David, 70, has an estate worth £1.5 million, including £600,000 in investments he doesn’t need for his own retirement. To reduce his potential inheritace tax bill, he sets up a discretionary trust on the recommendation of his adviser for his three grandchildren and transfers £400,000 into it.

Because the first £325,000 falls within his nil-rate band, there’s no upfront lifetime IHT on that portion. The remaining £75,000 is immediately subject to the 20% entry charge, so the trustees pay £15,000 to HMRC.

The trustees invest the £400,000 in a diversified portfolio. Over the next ten years, it grows to £550,000. At the first ten-year anniversary, the value above the nil-rate band (£225,000) faces the full 6% periodic charge, or a £13,500 tax bill. 

Luckily, David survives more than seven years after setting up the trust, so the original £400,000 is outside his estate for IHT purposes, helping cut his family’s potential 40% inheritance tax bill by over £220,000.

Examples shared for illustration purposes only. Not investment recommendations.

Common pitfalls of discretionary trusts and what to avoid

• Forget to register the trust or file returns? You've missed the ladder and landed straight on an HMRC snake slithering down to penalties.
• Retain income instead of distributing it? Good news, but for HMRC, who will be taking 45% of interest and 39.35% on dividends (and that's before fees).
• Put your house in trust and keep living in it? That's not a real gift, that's a "gift with reservation of benefit" (like buying your spouse a Peloton for their birthday, then hogging it every morning). HMRC will see right through it and kill your IHT saving.
• Think no one will argue over vague instructions? Discretionary means no one's guaranteed anything, which all but guarantees family drama.
• Miss the ten-year charge? You're still on the hook for up to 6% of the trust's value above the £325,000 threshold; that's standard. But miss filing or payment deadline, and HMRC will pile on interest and penalties. These charges creep up silently, and trustees are expected to know exactly when they land.

Family investment companies: trust-style control, without the trust-style tax

Set up a company, lend it your money, and give your kids shares in the upside.

You keep control; they get the growth. It's like lending them a bike you still own: they get to race downhill, you get it back spotless at the end, and HMRC can't keep up.

How they work

You set up a private limited company.

You (the parents) hold the voting shares. The kids hold non-voting shares, or you set up a trust to hold them on their behalf. Then you fund the company, usually by lending it a chunk of money. That creates a director's loan account: the company owes you the money, but it now has capital to invest.

From there, the Family Investment Company (FIC) buys assets: shares, funds, property – whatever you'd otherwise hold in your own name.

Any income or gains are taxed inside the company at the usual 25% corporation tax rate. That's generally lower than personal income tax and capital gains tax, and gives you control over when the money leaves the wrapper.

Thinking about hiring a financial adviser? Find out what questions to ask before you commit – and the answers you want to hear.

Why use one?

Here's the clever bit: the growth goes to the children.

Their shares might be worth close to zero when the company starts, because the company owes all that money back to you. But as the company repays the loan (tax-free) and grows in value, the kids' shares become worth more, shifting wealth to them over time, outside your estate for inheritance tax.

Unlike a trust, there's no 20% entry charge when you give away shares in a family investment company.

Instead, you rely on the usual seven-year rule: if you survive seven years after the gift, it falls outside your estate for inheritance tax.

You gradually give shares in the company to your kids, either using your annual gift allowance (currently £3,000 per year) or by making larger gifts that fall outside your estate if you live seven years.

At the time of gifting, those shares are often worth next to nothing, because the company owes you back the money you lent it.

But as the company grows, that growth sticks to the kids' shares, and all that future value stays out of your estate from the start.

Meanwhile, you're still in charge. You decide when – or if – dividends are paid. If you wait until your kids are older and earning less, they'll likely pay lower tax on those dividends, which means more money stays in the family.

Some families set up a simple trust to receive the dividends instead, so they can choose later who benefits, for example, sending income to a grandchild at university.

But keep in mind that once the dividends leave the company, someone has to pay personal tax on them. So it pays to plan the timing carefully.

Just like any investment company, a FIC doesn't get a free tax reset when assets are passed on or sold.

If the company sells something that's grown in value (say, shares are bought for £10,000 that are now worth £100,000) it pays tax on the full £90,000 gain. There's no fresh starting point or "reset" to today's value, even if shares change hands between family members. So if you're planning to sell valuable, long-held assets, think ahead, as the tax bill could be chunky.

Common pitfalls of family investment companies and what to avoid

• Think it's set-and-forget? It's still a company. You'll need annual accounts, corporation tax returns, confirmation statements, and the accountant's bill that comes with them.
• Underestimate setup costs? Proper legal drafting for share classes, Articles, and agreements don't come cheap. Expect a few thousand pounds upfront, though still cheaper than long-term trust admin if you're managing serious wealth.
• Assume the shares are IHT-free if you die? Not if you're still holding them. Any shares still in your name get pulled into your estate. The solution? Gift them early and survive seven years, or structure it so the value shifts to your kids' shares from the start.
• Forget that investment companies don't qualify for Business Property Relief? HMRC is crystal clear: if the company mainly holds investments, BPR doesn't apply. That means no shortcut IHT relief if you hang on to shares until death.
• Expect flexibility if the kids want to cash out? Selling the portfolio means corporation tax on gains, and then dividend tax if they take the money out. So unless they enjoy funding HMRC's biscuit budget, they're better off playing the long game.
• Forget about double taxation? Profits inside the FIC are taxed once at 25%, then again when taken out as dividends. It works best when income stays inside and grows, or is paid to lower-tax-bracket family members.

Investment holding companies: tax control with a corporate wrapper

An investment holding company is a private company you set up to hold your investments like shares, bonds, property, and even loans, instead of owning them in your own name.

You own the company; the company owns the assets. Any profits it makes are taxed at corporation tax rates, which can be lower than personal tax.

Crucially, you control when (or if) you take money out, meaning you can let profits grow inside the company without immediately triggering personal tax.

How they work

Profits inside your company from things like rent, interest, dividends, and capital gains are taxed at the standard 25% corporation tax rate.

Most Personal Investment Companies are classed as "close investment-holding companies", which means they don't qualify for the lower 19% rate on small profits. They pay the full 25% from the first pound.

There's one exception: if your company runs a proper rental business (e.g. letting to tenants who aren't family), HMRC may treat it as a trading company, which could unlock the small-profits rate. But a portfolio of shares, bonds, or group loans won't qualify.

Companies don't get the annual capital gains tax allowance that individuals do. Every pound of profit is taxed.

Why use one?

Once profits are inside the company, you decide when (and how) to take them out. Most owners wait and draw dividends slowly, using their tax bands efficiently.

Dividends are taxed at 8.75%, 33.75%, or 39.35%, depending on your income. There's a small tax-free allowance: £500 as of April 2025.

You can also pay yourself a salary, but it's usually less efficient, as it triggers PAYE income tax and National Insurance.

If you close the company later on, any leftover funds may be taxed as capital, potentially 20%, or 10% if you qualify for Business Asset Disposal Relief.

But plan carefully; taking money out early as a "loan" can backfire, as the company must pay a temporary 33.75% tax on the loan amount (under Section 455) unless you repay it quickly. This rule exists to stop people extracting funds tax-free.

Common pitfalls and what to avoid

• Think the company saves you tax no matter what? Only if you leave the money in. Take it out right away, and the combo of 25% corporation tax plus 33.75% dividend tax can leave you worse off than if you'd just paid income tax. The strategy works best if you don't need all the income now, allowing the company to invest pre-personal-tax profits for years.
• Forget you're running an actual company? That's a one-way ticket to missed filings, surprise penalties, and frantic calls to your accountant. You'll need accounts, CT returns, and Companies House paperwork every single year.
• Start dipping into the company funds for personal use? That "quick loan" to yourself triggers a 33.75% tax bill under Section 455. And no, calling it "a float" doesn't make it legal.
• Use the company's assets like they're yours? That's not clever, that's a Benefit in Kind. Drive the company car or live in its flat, and HMRC will tax it like a salary top-up.
• Expect the 19% small-profits rate? Not likely. If your company mainly holds stocks, bonds, or lets property to family, HMRC will treat it as a "close investment-holding company", slapping you with the full 25% tax from pound one.
• Decide to shut it down without a plan? Extracting assets when you wind up the company can trigger tax all over again - either dividend or capital gains, depending on how you do it.

Business relief strategies: how to pass the farm, the factory, or just your AIM shares

Business Property Relief (BPR) can shield trading businesses and farmland from inheritance tax; a sweet reward for early mornings, muck, and milk-stained overalls.

And if you don't fancy getting up at the crack of dawn to the sound of cockerels shouting and cows lining up for a good udder-groping, you could just buy some qualifying AIM (Alternative Investment Market)-listed shares and let the market do the dirty work.

How they work

BPR and Agricultural Property Relief (APR) are like secret tunnels under the inheritance tax wall. If you own a trading business, farmland, or the right kind of unlisted shares, these reliefs can reduce the taxable value of your estate by up to 100%. That's a potential 40% tax saving.

The rules say you need to have owned the asset for at least two years before you die (or before gifting it), and the business must be "trading", meaning it makes money by doing something, not just sitting on stocks, property, or cash. Rental property companies? Nope. Investment portfolios? Nope. A bakery, a software firm, a farm with actual cows? That's more like it.

What qualifies for 100% relief?

• A whole trading business or a stake in one.
• Shares in an unlisted trading company (including most AIM shares).
• Farmland and farm buildings (if genuinely used for agriculture).

What gets only 50%?

• Land, buildings or machinery you personally own and let your business use.
• Controlling stakes in fully listed companies.
• Older farm tenancies (pre-1995)

One catch: from April 2026, the reliefs come with a cap. The first £1 million of qualifying assets (per person) can still get 100% relief. Anything above that drops to 50% relief, so you'll pay 20% tax on the excess. For a couple, that's £2 million protected at 100% assuming you both qualify.

Farms and APR

APR works like a dedicated exemption for agricultural land, including farmhouses and outbuildings if they're genuinely used for farming.

It's based on the "agricultural value" of the land, not potential development value. So if your sheep-grazed hills suddenly become prime ground for a Tesco, only the base farm value qualifies, not the entire windfall.

If you're letting out the land, as we mentioned above, the tenancy terms matter: modern farm business tenancies usually qualify for 100% relief, but older ones might only get 50%. The ownership period is longer, too: seven years if let out, versus two if you farm it yourself.

AIM portfolios: BPR for city slickers

No tractor? No problem.

Many investors use AIM-listed shares to access BPR without running a business or a farm. Since AIM companies are "unlisted" for inheritance tax purposes, shares in qualifying ones get 100% BPR, provided the business is trading, and you hold them for at least two years until death.

So instead of giving assets away and starting a seven-year Potentially Exempt Transfer (PET) clock, you could shift £500k into an AIM BPR portfolio, hold it for two years, and (if you're still alive) watch it fall out of your estate. No trust. No loss of control.

You can sell the shares if needed, but doing so restarts the two-year clock, so it's a game of hold-until-the-end.

Professional AIM services exist to spread your portfolio over 20–40 qualifying companies and reduce single-company risk. But this is the rodeo end of the stock market, and your portfolio might buck so hard you'll wish HMRC had just taken their 40% and left you in peace.

Common pitfalls and what to avoid

• Think every AIM share qualifies? Not even close. AIM is full of wildcards, from property firms to cash-shell investment vehicles that don't meet the trading test. If your BPR plan hangs on AIM, you'd better triple-check the fine print.
• Assume two years is plenty of time? Death doesn't care about your tax plan. If you die before holding the assets for two full years, there's no relief.
• Expect all farmland to qualify for APR? Only if it's genuinely farmed. Land let under an old tenancy might only get 50% relief, or none at all if the terms don't meet HMRC's rules. And claiming your Georgian manor and a few moody hens count as agriculture won't fly, especially when the chickens are more into pecking sourdough than laying eggs.
• Ignore the new relief cap? From April 2026, only £1 million of business or agricultural assets per person gets 100% relief - the rest gets 50%. That means some inheritance tax exposure is now baked in for larger estates. Do nothing, and you'll bake in a bill too.
• Miss the political storm clouds? BPR's days as a sacred cow may be numbered. There's already a cap incoming, and talk of tightening AIM eligibility or extending holding periods. It's legal for now, but remember what Jesus said about building your house on sand: lots of fish-and-chip shops nearby... or something like that.
• Forget about liquidity? You can't pay the taxman with pigs or unlisted shares. If most of your estate is tied up in BPR or APR assets, your heirs might still need to sell something (or take out a loan) to cover the rest. The next section covers insurance-based solutions to exactly this problem.

Insurance-based planning: the safety net that pays out when you can't

Some parts of wealth protection are about growing your pot.

This part is about ringfencing it, so it doesn't vanish at the worst possible moment, like when you're incapacitated, dead, or just too unwell to explain to your nephew why he's not getting the vineyard.

Used properly, life insurance and related policies can do three very powerful things:

• Deliver lump sums exactly when they're needed.
• Land those sums in the right hands, fast.
• Swerve inheritance tax, income tax, or corporate chaos.

They don't make you richer; they just stop sudden financial pressure from forcing bad decisions like selling off company shares to cover tax, or giving up control of your business because your co-owner has died and now their schnauzer-breeding widow wants voting rights.

How they work

There are four main insurance-based tools for affluent individuals. Each solves a different kind of "what if":

Relevant life plans (RLP)

Designed for directors and high earners, this is life insurance paid for by your company.

It's not taxed as a benefit, and the payout (typically written into a trust) stays out of your estate, so no income tax on premiums, no National Insurance, and no 40% inheritance tax on the lump sum.

When used correctly, it can be around 49% more efficient than paying for life cover personally.

HMRC's rules say the policy must be pure protection, not savings or investment, and the purpose must be to provide for your family, not to sneak in a retirement bonus disguised as mortality planning.

We’re partnered with LifeSearch and Heath Protection, a couple of options that shop around to get you a good deal on your behalf – based on the cover you actually need.

Key person insurance

This covers the loss of a vital employee or director. If they die or suffer critical illness, the company gets a payout to cover lost profits, recruitment costs, or that weird gap in operations only they understood.

Tax treatment depends on what you're protecting:

• If the policy is to cover lost sales or income (say, your star salesperson dies), you can usually deduct the premiums, but the payout will be taxed as income.
• If it's to protect the business's overall value (like reputation or disruption), you likely can't deduct the premiums, but the payout might come in tax-free.

You don't get both. It's like trying to claim you live in Monaco while your Amazon Prime still ships to Milton Keynes.

If you want the payout to go to the deceased's family, this isn't the right policy. You need shareholder or relevant life protection for that.

Shareholder or partnership protection

Let's say you co-own a company. If your partner dies, you want the option to buy their shares, not to be stuck in a boardroom explaining the cross-option agreement to their bewildered in-laws using staplers and water bottles.

This kind of cover ensures the surviving owners get a lump sum (usually via a trust) to buy out the deceased's shareholding, under a legal agreement.

The payout isn't taxed, it doesn't get tangled in probate, and the family gets cash instead of shares they can't manage. It's cleaner for everyone, and spares you years of sending polite Christmas cards to people you never wanted as business partners in the first place.

Life insurance in trust

This one's basic but often missed. If you've got a personal life insurance policy and it isn't written into a trust, the payout lands in your estate.

That means 40% inheritance tax if you're above the nil-rate band, and a long wait while probate is sorted.

If it's in trust, it bypasses both. Your beneficiaries get the money directly, within weeks; a lifeline if your family needs to pay bills or inheritance tax upfront without selling assets.

Common pitfalls of insurance-based planning and what to avoid

• Using a relevant life policy post-exit without changes? Keep it running after you leave the company, and it might become a taxable benefit. These plans are meant for employees – if your company folds or you move on, you may need to convert the policy to a personal one or risk losing the favourable tax treatment.
• Insuring your receptionist for £5 million? That's a red flag. HMRC expects key person insurance to be proportionate. Think a multiple of salary or profit contribution. Go too high and they might treat it as capital cover, making premiums non-deductible and payouts taxable.
• Paying shareholder protection premiums from the company account? If the policy benefits individuals, HMRC may treat it as a distribution, not a business expense. Best practice is for each shareholder to pay for their own cover – side-stepping benefit-in-kind issues too.
• Forget to update your shareholder cover after the business grows? If the company's value or ownership changes but the policy doesn't, the payout might not be enough, or go to the wrong person. That's how family rows and legal messes begin.
• Think HMRC ignores money paid into a trust? Even if the life insurance payout avoids inheritance tax, the money you pay into the policy each year might not. If the premiums are big, HMRC could treat them as gifts – and those can be taxed if you die within seven years. To stay on the safe side, either use your £3,000 annual gift allowance or show the payments come from your normal income.

Bottom line

There's no single best way to protect your wealth. If you're likely to drop into a lower income bracket later, an offshore bond can delay the tax bill until it hurts less.

If your priority is inheritance, a trust or family company can shift future growth out of your estate while keeping you in control. Own farmland, a business, or the right kind of AIM shares? You might not need wrappers at all – reliefs could do the job for free, provided you plan ahead and meet the rules.

Used well, these tools let you pick the timing, the tax rate, and the hands your assets fall into.

Used badly, they're just a set of expensive admin chores – about as effective as a hedgehog holding a stop sign on the M25. This isn't a DIY job you can squeeze into a spare Sunday afternoon over a coffee. If you're thinking of using any of the above strategies, it's essential you get advice from a qualified adviser first.

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