Investment Bond Advice Enquiry
Investment Bond Advice London
Are you after a tax efficient way of investing? Are you looking for advice on Investment Bonds in London? We can help you understand the benefits of the various tax efficient investment vehicles that are on offer in the UK and offshore.
As the tax structure in the UK is very much a changing environment, advice in this area has to adapt.
We would always recommend that before you even consider investing in an Investment Bond you should be using up you ISA allowance and your annual Capital Gains Tax (CGT) allowance. If you are married you will have two lots of ISA and CGT allowances to use up each year.
With the new CGT rate at 18% (09/10) it would seem difficult in many cases to justify an onshore Investment Bond as a 20% tax is paid by the Life Office for any gains within the product. There is also a potential further 20% Income Tax liability for High Rate tax payers (09/10). The top rate of income tax is also due to rise to 50% as of 6 th April 2010.
You have far more flexibility using Investment Funds (unit trusts, OEICs & ETFs etc.) as the funds can be accessed at any time with no penalty. Also Investment Funds may often (not always) have lower charges than Investment Bonds especially if the investment is held for a shorter term.
It is quite probable that after the election, expected in May 2010, the Capital Gains Tax rate will be raised above 20% which would mean Investment Bonds would then be very attractive again.
Offshore Investment Bonds do offer gross role-up as there is no income tax liability on the investment until money is withdrawn (above the yearly 5% return of capital). These products often have quite high charges but may be worth it if the funds are to be invested for a long period of time.
Investment Bonds or Life Assurance Bonds do still have their place in certain circumstances as they are a non income-baring asset and therefore could be used, for example, in a Trust arrangement to reduce ongoing accountancy costs. Investment Bonds can be held in joint names and have Life Cover that can be put in Trust which could also be of benefit in certain types of cases. Discounted Gift Trusts and Loan Trusts are used for Inheritance Tax sheltering and are often linked to Investments Bonds.
If you are worried about needing to pay for Long Term Care, Life Assurance policies are often not counted as part of your total assets when eligibility for local authority funding is assessed.
If income is needed, the annual 5% withdrawals may work for a High Rate Tax payer. For someone who retired and wants extra income, but is worried about falling into the age allowance ‘trap', Investment Bonds could work. In all cases serious consideration needs to be placed on when the Investment Bond is likely to be cashed in and what the tax implications will be at that time.
There are numerous legal ways to invest tax efficiently and we would always recommend that seek professional independent advice before taking the plunge.
Investment Bond (or Life Assurance Bonds) Information
Investment Bonds, or Life Assurance Bonds, are products that are often sold by IFAs. This is principally because the commissions are very high, usually 6-7% but can be up to 8%. We are a fee based practice and do not charge more than 3% for Investments (subject to a minimum case size) so this irrelevant to us. We focus on what is best for the client.
You are able to withdraw 5% of the original investment each year without any immediate tax liability and so may defer the payment of tax for up to 20 years. Higher-rate tax payers, therefore, may receive a 5% per annum income each year (for up to 20 years) which has only been taxed at around the basic rate. The tax deferred will not be paid until the Investment Bond is finally cashed in if the policy holder is a High Rate tax payer at that stage or if the ‘slice' allocated to income takes the individual into the High Rate bracket.
If the gain on an Investment Bond at encashment or partial encashment could potentially push you into High Rate tax, even if you are normally a basic rate taxpayer, ‘Top-slicing' may help. At encashment, over the annual 5% allowance, your total gain is divided by the number of years you have held the Investment Bond. The resulting figure is an average annual gain.
If the average gain, when added to your other income, falls within the basic rate tax band you will have no further tax to pay. If it partly falls both in the Basic and Higher Rate tax band, you will be charged Higher Rate tax on only part of the gain. This is then multiplied by the number of years you have held the Investment Bond. If the gain all falls in the higher rate tax band, you will have to pay extra tax on the whole gain. One tactic of course is to delay encashment until you are a Basic Rate tax payer.
Charges for Investment Bond policies do vary substantially and will be affected by the size of the initial commission. Early redemption charges are often a feature.
The quality of the product in terms of availability of investments will also vary massively depending on the provider. Some products may offer a small ‘core' fund choice, with a lager fund selection available with higher charges.
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