How trusts and bonds can help expats win at whack-a-mole taxation

16,500 — that’s the number of high-net-worth individuals (HNWs) expected to leave the UK in 2025 [1] , a near two-thirds mark-up on the 10,000 who left the country in 2024. Why the big step up? Escaping the weather no doubt a factor, but wet summers in England are nothing new. No, the finger of blame can be pointed squarely at the UK’s rising tax burden.

The £40bn tax-raising Budget of October 2024 included a raft of changes which hit HNWs hard, including counting unused pension funds and pension death benefits as part of a person’s estate for inheritance tax (IHT) purposes from April 2027 onwards.

Trouble is, with the UK chancellor having to plug yet another multi-billion-pound funding gap, taxes are expected to be hiked further in the upcoming 2025 Autumn Budget.  Whack-a-mole, the game where players use mallets to hit randomly appearing moles back into their holes, springs to mind. And if that’s the case, HNWs in the UK will likely be called upon to do their bit once more. This could well encourage more HNW migration.  

However, leaving the country doesn’t mean exposure to UK taxes automatically disappears. Expats who remain outside the UK for more than 10 years may still be subject to IHT on their UK estates. Not all income and gains generated in the UK are disregarded after this time either. And then there is the fairly large number of expats who find themselves returning to the UK someday, often due to life events surrounding family or health.

What is a trust?

Trusts are financial arrangements used to manage an array of assets from investments and cash to land and property. They are created on behalf of an individual (the settlor) who has often set up a trust for the benefit of others (the beneficiary or beneficiaries).

To create a trust the settlor hands over assets to those he or she trusts (the trustees), who in turn look after the assets on behalf of the beneficiary/beneficiaries. Each trust has its own set of can dos and can’t dos, cost structures and tax regimes. Typically, wealth held through a trust is treated differently to personally owned wealth from an income tax (IT), capital gains tax (CGT) and IHT perspective. Hence the key role trusts can play in financial planning.

Trusts are often used by clients to transfer wealth out of their estates while ensuring the desired people benefit from that wealth at the right time. They can also be used by settlors for retirement planning and business succession strategies to avoid a larger tax problem in the future as their estates grow. There’s no such thing as a one-size-fits-all trust solution. Various types of trusts exist to cater for the wide range of reasons behind going down the trust route. Assuming trusts are deemed suitable for a client, a tailored solution can be designed to meet the individual’s needs and objectives.

What is an investment bond?

Investment bonds are single-premium whole-of-life policies that only come to an end when a specific event happens - maturity, death of the life/lives assured, or encashment. 

A bond is setup when a policyholder pays a lump sum to a life insurance company which then invests on the policyholder’s behalf, usually into a range of funds as well as specific equities if required. The lump sum is split proportionately among a number of identical policies, so each policy can be dealt with separately, providing flexibility when it comes to administration and tax planning.

Bonds can be either onshore or offshore. For expats, offshore bonds provided by non-UK insurance companies are relevant. That’s because, for the most part, the underlying funds are not taxed, which enables the investment to grow faster. This is known as gross roll-up.

Investment bonds can be efficient in terms of CGT and dividend income. Legal ownership of the bond can also be changed at any time by deed of assignment including into, or out of, a trust. Generally, such transfers do not give rise to a tax charge.

The power of two

Put a trust and bond together and the benefits can be significant. When held inside a trust, the value of an investment bond, over time, can be taken outside of an estate for IHT purposes - some trusts operate well without bonds but specific ones, such as discounted gift trusts and reversionary interest trusts, need bonds to create an IHT advantage. The trust-bond solution can also enable a gift to be made to loved ones while allowing the donor to retain influence over how and when the funds are accessed. And the use of a trust can help avoid delays in accessing funds during probate.

There’s a ‘but’, however. Trusts and bonds are not for everyone. Inheritance and estate taxes are complex areas, requiring specialist advice based on a comprehensive review of an individual’s circumstances. If a trust-bond solution is deemed appropriate, the right vehicle and structure must be chosen and subsequently monitored on a regular basis to ensure the solution remains suitable. Expats may also be subject to IHT in the country in which they live, and in the country in which their assets are located (situs). The best plans accommodate UK considerations, where the expat lives and the situs of their wealth.

At Quilter Cheviot, we have been providing specialist advice to both UK and international clients for decades. Through our tailored investment management and financial planning offering, we deliver bespoke advice on cross-border finances, tax, and regulation to expatriates and globally mobile individuals. Our dual proposition and our network of offices in Dubai, Dublin, Jersey and the UK mean we can provide a consistently high-level of support to clients at all stages of their international journeys, even if moles do pop up with little or no warning every now and then.

  [1] Private Wealth Migration 2025 | Press Release | Henley & Partners  

Investments and the income from them can go down as well as up, you may not get back what you invest.

Approver: Quilter Cheviot 04/11/2025

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