While the software reflects the personal taxation that applies to individuals holding different types of investments – in terms of income tax and/or capital gains tax, etc. – we have not previously had any mechanism for reflecting differences within any of these tax-wrappers themselves.

There is an obvious contrast, in this regard, between UK Onshore Investment Bonds, invested in life funds, on the one hand, and Offshore Bonds, invested in a variety of ‘collective investments’, on the other. Within the former, life fund tax is payable on income received/gains made by the underlying investments. Offshore Bonds, by contrast, benefit from ‘gross roll-up’, with the underlying investment gains not being subject to tax, at source, (asides from an element of withholding tax).

It is obvious that the underlying taxation (of UK life funds) represents a ‘drag’ on growth, relative to Offshore Bonds; because it is the gains that are subject to tax, however, it is imperfect to treat the ‘drag’ as a constant, fixed %.

In order to better capture the relative differences between onshore and offshore bonds, we have introduced a setting to specify an Internal Tax Rate to be applied to onshore bonds. The internal tax rate will only be applied to growth on the account – e.g. a 20% rate of tax would reduce an assumed ‘headline’ growth rate of 5%, to 4% - a reduction of 1% (i.e. 20% of the assumed growth). An assumed ‘headline’ rate of 4%, on the other hand, would see a reduction of only 0.8% (to 3.2%), and so on.

The default internal taxation for onshore bonds can be set as a default in Plan Settings, under Fees & Taxation