Investment Bonds

A packaged investment provided by a life assurance company.

Investment Bonds

It can be an attractive vehicle for investing over the longer term due to its simplicity and its ability to provide a regular withdrawal facility without any immediate liability to tax, as withdrawals are not classed as income.

The life company pays corporation tax in the fund, so for basic-rate taxpayers there is no further tax to pay. However, non-taxpayers cannot claim the tax back. A higher-rate taxpayer can defer the tax due to sometime in the future when they may be a basic rate taxpayer and therefore avoid paying the extra 20% tax.

Many people seek to protect their family assets by placing them into trust. Unfortunately trusts pay a higher rate of income tax than most people, typically 45% versus 20% and their Capital Gains tax allowance is only half that of a person i.e. £6150 rather than £12,300. Investment Bonds are ideal solutions to this problem as the income payable from an investment bond is classed as “return of capital” and therefore not subject to income tax.

If you are unlucky enough to need to go in to care, an Investment Bond is exempt from the Local Authority means-test. However, if you invest into an Investment Bond primarily for this reason, the Local Authority will consider this as “deliberate deprivation” and will include the value of the bond in the means-test.

60 Second Case Study: Why investment bonds make sense...

Mrs L had lots of small bank accounts paying little or no interest. She wanted to simplify matters, make her money work harder and receive a regular monthly income. So she invested into an investment bond. Many years later she sadly had to go into care and the Local Authority assessed her finances. They ignored the value of the bond and when she died, this money went to her family.

Don’t leave it too late. Please contact us for more information.