Investment Bonds

Investment bonds are offered by life insurance companies. They are a way of allowing you to invest in a mixture of investment funds.

• Professional investment managers manage the funds.
• The design of each fund is to provide a benefit for different types of investor.
• A common element is that they aim to produce long term capital growth and / or generate a long term return.

Investment Bonds are just investment tax wrappers.

Investment Bonds are not ‘bonds’. Bonds are effectively loans in the forms of gilts, corporate bonds and high yield bonds.

When you invest in an Investment Bond, you are allocated a number of units in the fund of your choice.

Each fund will invest in a range of assets.

The price of your units will normally rise and fall in line with the value of these assets.

Investment bonds are single premium life insurance policies. Therefore, this means that a small element of life insurance is provided. Life Insurance pays out after your death.

What Are The Main Benefits Of An Investment Bond?

• Regular withdrawals can be taken.

  – For instance, by taking your regular withdrawals, you can supplement any other income you have. You can choose to withdraw a set amount or a set percentage of the amount you originally invested.

• Tax Benefits.

  – The life fund will pay corporation tax on any gains it receives. As a result, this will satisfy the liability to basic rate tax. For example, you can withdraw up to 5% of the capital amount invested each policy year without triggering an immediate chargeable event for up to 20 years. This allowance is limited to the amount of capital invested. Annual withdrawals of 5% can be taken for 20 years.

• You can choose to invest in a range of funds.

  – This enables you to diversify risk by investing in a range of funds, or to tailor an investment strategy to a specific fund or group of funds.

• Also you can choose a portfolio.

  – Or you can choose a mixture of both fund and a portfolio. Adding a portfolio will enable your money to be managed by a third party, meaning that a Portfolio Manager can ensure your investment strategy is adapted to changing market conditions and remains in line with your tolerance for investment risk.

• You can usually switch between funds within your bond.

  – Most bond providers will allow you to switch from one fund to another during the year, ensuring that strategies can be changed to meet your changing requirements.

• Investments Bonds can be written in trust.

  – This can be useful in inheritance tax planning matters. As investment bonds don’t produce a natural income or require a tax return to be submitted, they are a popular choice for Trustees looking to negate inheritance tax.

Offshore Investment Bonds

An Offshore Investment bond effectively has the same features as a normal Onshore Investment Bond.

However, it has additional tax benefits. The offshore life fund pays no corporation tax on any gains it receives.

Interest and dividends benefit from ‘gross roll-up’. Therefore, you will not be liable for tax on income and gains of underlying investment funds.

In addition, as with the onshore investment bond, you can withdraw up to 5% of the capital amount invested each policy year. You can do so without triggering an immediate chargeable event for up to 20 years. However, this allowance is limited to the amount of capital invested. Annual withdrawals of 5% can be taken for 20 years.