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An investment bond gives you the potential for medium to long-term growth on your money, money, so over years or more, along with fund management expertise. You also get access to a mixture of funds, which are looked after by professional investment managers. Of course like any investment, their value can go down as well as up and you may not get back what you put in.
So if your need is solely for life insurance, you may wish to research other more tailored options. That said, you usually buy an investment bond from a life insurance company, or directly through a financial adviser. They will invest your premium on your behalf for potential capital growth, which should build up until you withdraw money from your policy. Some investment bonds may require a minimum investment term and apply charges for cashing in early. Investment bonds mainly fall into two categories, onshore and offshore.
The main difference is their tax treatment. Offshore bonds may also offer a wider choice of funds. Each have their own benefits and risks and the tax situation of each can vary. UK Investment Bonds are non-income producing investments and so have a different tax treatment from other UK based investments. This can provide valuable tax planning opportunities for individuals.
This notional tax is not repayable in any circumstances. Certain events, also known as chargeable events, that can occur during the lifetime of your onshore investment bond may trigger a potential Income Tax liability:.
If any of the gain falls in the higher rate tax band you may get a reduction in your tax through top slicing relief, depending on your circumstances. This can be quite complicated, so to understand how this works please speak to your financial adviser. As you are treated as having paid basic rate tax on the amount of the gain, the amount you would be liable for is the difference between the basic rate and higher or additional rate tax.
The events may also affect your eligibility for certain tax credits and you could lose some or all of your entitlement to personal allowances. If you do this, you may not need to pay tax on any gains from your bond. This includes «true offshore» locations such as the Channel Islands and Isle of Man, and other locations such as Dublin. Tax treatment can vary from one type of investment to another, and from one market location to. Offshore bonds may offer a wider choice of funds.
With an onshore bond tax is payable on gains made by the underlying investment, whereas with an offshore bond no income or Capital Gains Tax is payable on the underlying investment. However, there may be an element of Withholding Tax that cannot be recovered. Withholding Tax is deducted from interest and dividends received by the fund. The lack of tax on an offshore bond means that potentially it could grow faster than one that is onshore, although this isn’t guaranteed.
But, note that you will pay income tax on any gain at your highest marginal tax rate. This is because on an offshore bond you are not treated as having paid basic rate tax on any gain. Other common types of bonds include fixed-rate bonds, corporate bonds and government bonds.
An investment bond could therefore be a potentially tax-efficient way of holding a range prudential investment bond contact investment funds in one place. When you invest in a bond you will be allocated a certain number of units in the funds of your choice or those set out by the conditions of the bond.
You can choose to invest in a range of funds, a portfolio, or a mixture of. You can also usually switch between funds within your bond. However, there may be a charge for. If invested in a diverse range of assets then there is potential to weather the storm of any changes in the market that could affect the value of your investment.
If you need more information on bonds, please speak to a tax specialist or contact a financial adviser. Information is also available on the gov. Remember that the value of an investment can go down as well as up and you may not get back the amount you put in. Because tax rules can change, prudential investment bond contact impact of taxation and any tax relief depends on your individual circumstances. If you’re looking for further information or want to chat about your product options, we can help.
Cookie information. Close Your web browser seems to have cookies disabled. Cookie policy Show cookie policy. Guide to investment bonds An investment bond gives you the potential for medium to long-term growth on your money, money, so over years or more, along with fund management expertise.
Types of investment bonds Investment bonds mainly fall into two categories, onshore and offshore. Onshore investment bonds UK Investment Bonds are non-income producing investments and so have a different tax treatment from other UK based investments. Certain events, also known as chargeable events, that can occur during the lifetime of your onshore investment bond may trigger a potential Income Tax liability: Death giving rise to benefits.
Transfers of legal ownership of part or all of the bond though not gifts. On the maturity of the bond not applicable for whole of life policies.
You cash in all your bond or individual policies within it. See the section below on Taking withdrawals from the bond. Life assurance bonds held by UK corporate bonds fall under different legislation. Special rules apply to trustee held bonds.
Taking withdrawals from the bond An investment bond could therefore be a potentially tax-efficient way of holding a range of investment funds in one place. Fund choice When you invest in a bond you will be allocated a certain number of units in the funds of your choice or those set out by the conditions of the bond.
Further information If you need more information on bonds, please speak to a tax specialist or contact a financial adviser. We are not recommending one option over another or providing advice. Learn the basics Types of investment Fund definitions. Share the article. Investment funds Pooling your money to help reduce investments risks. Deciding what to invest in The investment balancing act. Need help? Have questions? Contact us. Homepage Investments Investment articles Guide to investment bonds.
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