Investment bonds have many benefits for the person with a lump sum to be used. Of particular interest are the many tax planning advantages available. Not only can these bonds save income tax and capital gains tax but can also be used as part of simple inheritance tax reduction plans.
Bonds can be "onshore" in the U.K. or "offshore" in other territories. Offshore bonds are available to U.K. based investors and have many forms. Such bonds can have tax advantages such as the "rolling up" of profits/growth without taxation in the U.K. until the bond matures or is cashed in.
These bonds have been the discussed by government on many occasions with a view to reducing the tax advantages or removing them entirely but, so far, the opportunities they offer are still available. However, there are differences of opinion as to if, or to what extent, these advantages will continue to be of benfit following the introduction of the 18%/28% flat rate tax charges on Captial Gains.
Many types of investment bonds are currently offered - Income Distribution Bonds, Investment Portfolio Bonds and others. Administration is kept to a minimum - paperwork is very low.
The Income Distribution bond is designed to meet the needs of the investor wanting a mix of both "regular income" and capital growth but keeping the flexibility to alter the arrangements as circumstances change.The "regular income" can be taken in a variety of ways, as you choose (including monthly or half yearly payments) or may be just reinvested in the plan for total growth.
There is no need to keep all your eggs in one basket - you can invest in different Funds, with differing investment objectives, to improve the potential for better returns by spreading the investment.
Investment Portfolio bonds can be aimed at the lump sum investor who wants an extensive range of investment funds. This bond can often have no "bid/offer spread", a choice of ready-made portfolios to meet different investment needs and options to create your own portfolio from a wide range of funds including a With Profits, Fund of Funds, Tracking fund and ethical funds.
Investment can sometimes be made by using a share exchange facility, to cut down on the costs of buying and selling, and the bond can be enhanced by additional investments in the future. Such further investments may benefit from the allocation rate applicable to the whole investment.
Increased allocation rates can be available for larger investments and often fund switches a year are available free of charge.
The Investment Portfolio bond can be used as an ideal tax reduction vehicle. "Clustering" is available to reduce the impact of income tax on full or partial encashment and incorporating the bond into a Discretionary Will Trust or Loan Trust scheme can be effective in reducing inheritance
As we continue to remind all clients the value of investment bonds is not guaranteed and can go up and down depending on investment performance.