It is of course very disappointing when one waits many months for summer weather and then gets soaked in a downpour whilst traversing St James’s Park or watching the first Test at Lords.

Weather statistics show that 2 of the last 4 Junes (2023 and 2025) have been the hottest ever, but I wonder if this one may be the coldest since the Ice Age. There is still time and hope.

Just around the corner is Wimbledon. 1922 was the tournament most impacted by rain, not finishing until the Wednesday of week 3. In 2001 I remember Tim Henman fighting both the rain and a game opponent over a 3 day semi-final, but ultimately failing to reach the final.

Anyway this month we take a look at assignments in relation to international life assurance bonds (or offshore bonds as they are often known.) We do think this is one of the most attractive features of the bond for inter-generational planning.

Background

An International Life Assurance Bond (ILAB) also known as an offshore bond, is a tax planning vehicle that has been used by UK resident high net worth investors for many years. It is a long-term, tax-deferred investment vehicle issued by a life insurance company outside the investor’s home jurisdiction, typically in the Isle of Man, Ireland or Luxembourg.

The ILAB combines life assurance with investment features and is commonly used for wealth management, estate planning, and cross-border investment structuring.

The investor (known as the policyholder) pays a one-off premium to the ILAB provider which is then invested in a range of underlying assets including securities (stocks and bonds) and mutual funds.

The underlying investments are usually selected and managed by a delegated investment manager on a discretionary basis.

What is an assignment?

ILABs are typically segmented into 1,000 or more individual ILABs each with identical value. If the ILAB is set up with £1m and has 1,000 segments, then each segment is valued at £1,000. Each segment has its own legal identity and can be gifted (assigned.)

Over time, as the value of the ILAB increases, so do the values of each segment.

e.g. Frances establishes an ILAB in 2026 with an investment of £2m. There are 1,000 segments each valued at £2,000. By 2030 the value of the ILAB has reached £3m. Each segment is now valued at £3,000. Each of the £3,000 segments can be assigned.

Who do I assign to?

You might chose to assign segments to your children or grandchildren or to your spouse, or indeed anyone else you would like to favour. You can also assign segments to a trust (see below).

What are the tax advantages?

You may well be a 40% or 45% taxpayer. If you surrender segments of your ILAB (and then gift the resulting cash) you will face an income tax charge on the increase in value at surrender.

In the example above, assuming Frances is a 45% taxpayer, she would face an income tax charge on the profit of £1,000 in each segment of her ILAB that she surrenders.

Your children, grandchildren or a non-working spouse, may well not be 40% or 45% taxpayers. If you assign segments to them and they make a surrender they may therefore pay less tax than you do. (This assumes any children are 18 or over. If they are under 18 then any income tax liability will fall back onto the parent. )

It may even be that you have children or a spouse who is non-UK resident for tax purposes and therefore will not pay any UK tax on a surrender of ILAB segments. However you would need to check the tax situation in the country that they are tax resident in and also keep in mind the UK temporary non- resident rules*.

Not for money or money’s worth

Providing the gift of segments was not made for money or money’s worth, then a UK tax liability should not arise. A straightforward gift should be fine but, for example, assigning an ILAB to a lender in return for a loan would be an assignment for money or money’s worth and likely to be taxable.

This gives the ILAB a major tax advantage over gifts of, say, shares or funds standing at a profit, where such a gift would trigger a capital gains tax liability. Gifts (assignments) of segments of an ILAB do not trigger a CGT or income tax liability.

What about inheritance tax (IHT)?

If you assign segments of an ILAB to another individual, then this will be a Potentially Exempt Transfer (PET). Providing you survive for 7 years from the assignment then the gift will be outside of your estate for IHT. After 3 years the IHT due will start to reduce in line with IHT taper relief (unless the gift is covered by your IHT nil rate band of £325,000 in which case IHT taper relief is not applicable).

This assumes that the gift you make is outright i.e. there are no conditions attached.

Asset protection

For an assignment of ILAB segments to be successful the gift must be unconditional. This might be somewhat concerning for parents who do not wish their children or grandchildren to have unfettered access to large capital sums at a relatively young age.

In these circumstance, a parent might consider assigning segments to a trust. Providing the value of the gift is not more than £325,000 (£650,000 for a married couple) then an immediate charge to IHT should not arise (although full account will need to be taken of any other gifts to trust etc previously made)

Beyond that, it will come down to family relationships; for example making it clear that there will be no further gifts if the proceeds of first gift are not looked after sensibly.

*under the UK’s temporary non-residence rules, any gains on assets owned prior to UK departure and arising whilst non UK resident will be caught by UK tax if the individual making the disposal is not non-UK resident for at least 5 complete UK tax years. This includes gains arising on ILABs.