We use cookies to deliver the best possible web experience. By continuing to use this site, you agree that we may store and access cookies on your device. You can change your preferences at any time on your browser. For more detail, click here to view our cookie policy.

Generic Links

Welcome to RL360's

dedicated financial adviser website

For financial advisers only

Not to be distributed to, or relied on by, retail clients

What is the 5% Allowance?

One of the main features of using an offshore bond is the ability to take withdrawals of up to 5% of the premium paid each policy year without triggering an immediate tax charge. This is known as the 5% allowance.

What is the 5% allowance?

The Chargeable Events legislation allows 5% of the total premiums paid to be withdrawn from the policy each policy year without an immediate tax charge. A tax liability may still arise but it is deferred until the policy comes to a complete end.

Where some or all of the 5% allowance isnt withdrawn from the policy in one year, it will rollover into the next policy year.

For example if 3% was taken in policy year 1, 7% can be withdrawn in year 2 without an immediate tax liability (2% carried over from policy year 1 + the 5% allowance from policy year 2 and so on).

Regular premium policies

In order to carry out a calculation where your client has a regular premium policy, the 5% allowance is calculated upon the total premiums paid as at the end of that policy year.

Examples of calculating the 5% allowance can be found in our Chargeable Events Q & A.