An investment bond is technically a single premium life assurance contract although the life cover aspect is only nominal.
Bonds are collective investments in which the investments of many individual investors are pooled. This pooling enables relatively small investors to benefit from the economies of scale made available to institutional fund managers.
A wide choice of managed, general and specialist funds are available offering investment opportunities in equity, property and fixed interest securities. Bonds enjoy the facility to switch between these internal insurance company funds at a reasonable cost if desired. Although classed as single premium investments, ‘top-up’ facilities are offered, allowing further amounts to be invested either on a regular or ad-hoc basis.
To be eligible to invest in an investment bond, an individual investor must be 18 years of age or over. The investment can also be made on a joint basis, or by a company or trustee(s). The nominated life (lives) assured is usually the applicant/investor but could also include an individual aged under 18.
The minimum lump sum is usually £5,000 but this may be higher or lower depending on the provider. The maximum limit will be set by the provider.
The underlying funds of Investment Bonds are subject to tax within the fund on income and gains (after indexation). Any ‘income’ you need is achieved by selling units.
Investors also benefit from the ‘5% rule’ which allows them to withdraw up to 5% of the initial premium each year (until such time as all of the original investment has been withdrawn) with no immediate personal tax liability, making it particularly attractive to higher and additional rate taxpayers.
Past performance is not a reliable indicator of future results