IFA is recommending deferred tax offshore scheme where we can take 5% gross and defer tax and in five years sell. It all seems too good to be true but i dont fully understand. anyone had experience of deferred tax? good or bad grateful for any tip - dont want mr borwn to get all our cash!!

This is an insurance company investment bond via the offshore subsidiary of a UK insurer typically based in the Channel Islands, Dublin or the Isle of Man. The 5% is a withdrawal of your invested funds and not an income. The taxman deems it capital and hence does not seek to tax it on an arising basis. When you cash the bond in (or draw more than 5% cumulative) you pay tax on your profits (if any). The profit is the cash-in value plus any withdrawals you have taken minus the original investment. As the bond is offshore no tax is considered to have been accounted for at source so you will be taxed on the whole gain at the appropriate rate of income tax. There are UK versions where basic rate tax is deemed to have been discharged. The offshore option is not suitable for all and I would quiz the IFA as to why the offshore policy is more suitable for you than an onshore policy especially as the offshore one will have higher charges. Also consider that five years is the period over which 'early encashment' penalties will be applied but there are no guarantees of specific value at any point in time. Also be aware that these bonds can pay the adviser high levels of commission (up to 7% of your investment).