• Investment bonds are not the standard product used for investing money and cannot be used for regular savings either.
    What they do come in handy for though, is protection, as there are many out there with guaranteed growth or guaranteed capital, which can be a great reassurance. Bonds also come in very useful as part of Inheritance Tax planning

Investment Bonds

For those earning £150,000+ p/annum and need more income without more tax, an Investment Bond may be the answer. With these investment vehicles, investors can take regular tax-free withdrawals. However, as with all investments, they should be invested correctly and reviewed regularly so as to be beneficial, and that is what MAP does best.

Investors are allowed to take withdrawals of 5% p/annum from a bond tax-free, for up to 20 years. This is because 20*5 = 100%, i.e. the original investment amount before growth. What remains in the bond is deemed growth, and taxable at the highest rate when encashed.

We feel it important to point out that Investment Bonds are in effect, life insurance policies in which a lump sum can be invested. They are not bonds in the old-fashioned sense of the word, as you might think, i.e. Corporate Bonds or fixed rate bonds. In the vast majority of cases, other investment vehicles are more suitable for clients as they are not subject to income tax rules but Capital Gains Tax rules instead. When you consider the annual CGT allowance (£10,600), that is normally a better route to go down.

Investment Bonds should not be used by non-taxpayers, as basic rate tax is paid through such investments, and non-taxpayers cannot reclaim this back. This would then mean those individuals would end up paying tax, even when it is not due.

We tend only to use bonds in IHT planning as they can be written in trust for investor’s beneficiaries. Any income tax disadvantages can then be overcome while avoiding IHT.

Our approach to Investment Bonds is the same as with other savings and investment vehicles.

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