Why Use An Investment Bond
The principal attractions of using a bond as an investment vehicle are as follows:
- Bonds are not deemed to be ‘income producing assets’; this negates the need for individuals or trustees to complete self-assessment tax returns.
- Funds within the bond can be switched without the requirement for any tax reporting and without rise to Capital Gains Tax.
- 5% can be withdrawn from the bond without immediate tax liability for 20 years cumulatively.
- As well as the ability to draw funds from the bond within the relatively well known 5 per cent rule, there are a number of “exit strategies” that can be considered to minimise the tax on final encashment. These include the use of “top-slicing” relief combined with encashment in a year of lower income and/or assignment to a lower or non-tax payer.
- Bonds can be taken out with multiple lives, not true with ISAs or pensions.
- Bonds can be placed in trust.
- For higher and additional rate taxpayers, and especially where the underlying investments are expected to deliver a relatively high level of yield (interest or dividends), the tax deferring qualities of a UK bond will be particularly valuable. This is especially so for larger investments over the longer term.
WE believe onshore investment bonds are a particularly useful tool to satisfy the needs of investors looking for:
- growth on their investment over the medium to long term
- a range of income options including fixed levels of withdrawals
- pre/post retirement income provision with option to improve planning to minimise future tax liabilities and the flexibility to support changing needs
- a suitable investment vehicle for estate planning
- a range of funds available to help tailor a portfolio according to your attitude to risk and investment goals
However onshore bonds aren’t right for everyone, we believe they are not typically suitable for potential investors that:
- are non-tax payers, unless other benefits such as estate planning or fixed income needs outweigh payment of the equivalent of basic rate tax within the bond
- haven’t considered other investment types that may be more suitable to their needs, especially tax favoured products such as ISAs and pensions
- aren’t willing to accept any risk to their investment
- can’t commit to a medium to long term investment
- are not UK resident.