IN the current circumstances, any mention of offshore investments is likely to elicit a fairly negative response from potential investors. People are still smarting from the Icelandic debacle, so fear is understandable.
But not all offshore investments are the same and it is unwise to simply dismiss all such investments as inherently more risky than onshore investments.
Take the recent demise of Keydata, for example, where £103m has gone missing from what was a standard, regulated, onshore medium, subject to all the rules of the Financial Services Authority.
I thought, therefore, that some insight into the situation might be useful and will deal with the protection issue first.
Whether there is any investor protection depends on the jurisdiction and the type of wrapper the investment uses.
There is one caveat to add, which is that as a major re-evaluation of all this is being conducted under the Foot Review you will need keep a look out for future changes.
You should also be aware that the G20 has started to address this issue, their reason being to corral so-called tax havens into good behaviour in its reporting procedures.
Which is understandable when it is reckoned that the total value of offshore assets is in excess of $7 trillion.
The second point to note is that bank accounts are treated slightly differently to direct investments and life assurance products.
Confused? Read on.
The essence of any protection scheme is that it does not protect the investor from a bad investment but protects them in the event of the holder of the bad investment going walkabout with their money or some other misuse. Thus, when a bank goes down they are using your money to do it and so you get compensated.
But if a unit trust or other investment goes down this is called bad performance and you only get compensated if the unit trust management has done something criminal with the funds.
Obviously I am paraphrasing here, but hopefully you can see the distinction.
Moving on to life assurance products and policies, these are covered by current legislation.
However you should note that bank accounts wrapped in an offshore bond are not covered by the scheme, so make sure you check it out thoroughly if you are thinking of doing this kind of investment.
Recently I covered the coming changes in income tax etc.
One relevant change here is that, from next April, anyone with income over £100,000 will lose their personal allowance at the rate of £1 for every £2 excess income. So if, for example, next April you are earning £114,000 and the personal allowance is £7,000, then you will lose all your allowance.
This means that the marginal rate of tax on earnings where the allowance is lost is 60%, since at that level 40% tax is paid on income with a further 40% tax on the lost allowance.
Bear in mind this covers all income including dividends from investments — whether you take them as income or they are reinvested.
The good news is that using offshore life assurance bonds can help make both your tax position and your money more efficient.
The only problem is that you will have to wait until next week to discover how this can be done.
Nicholas Watts is an independent financial adviser with Positive Solutions Financial Services which is regulated by the Financial Services Authority. To contact him, use the website www.realwealthmanagers.co.uk