An investment bond is a collective investment within which the funds of individual investors are pooled together. This enables relatively small investors to benefit from the economies of scale made available to institutional fund managers.
How to Choose a Bond
There are many different options available and elements to consider when choosing a bond. Our investments specialists at TR Wealth will help you to understand the benefits of each option and identify the most valuable one for you based on factors including:
- Fund Performance
- Enhanced Allocation Rates
- Administration Levels
- Number of Funds Available
- Financial Strength of the Provider
- Flexibility of the Contract.
Investment bonds are also a useful tax planning tool and may provide a regular tax-deferred income, whereby investors may take up to 5% of the capital as income each year – for up to 20 years – without any immediate tax liability.
Investment Bond Options
Investment Bonds allow you to invest in either an insurance company with profits fund or the units of an underlying equity fund.
With Profits Bonds
When it comes to With Profits Bonds, growth is not directly related to the investment (which is made in a mix of shares, property, fixed interest and cash). Instead, bonuses are regularly declared with the potential for a termination bonus on encashment of the bond.
Investors enjoy smooth returns over the years as bonds are made on a relatively conservative basis so that funds can be held in reserve when stock market growth is unfavourable.
Unit Linked Bonds
With unit linked bonds, investments are made directly into asset classes. Bond growth is linked to the unit prices of the assets held with assets valued on a daily basis.
Offshore bonds are generally issued by subsidiaries of well-known UK life assurance companies in locations such as the Channel Islands, where the bond is subject to little or no tax on the income or gains received in the underlying fund. If you are a higher rate taxpayer, this may prove particularly attractive.
As offshore centres are generally not covered by UK regulations, we recommend speaking to the TR Wealth specialists to ensure that you are fully compliant with all supervision and compensation schemes in the country of origin before investing in a bond.
Offshore Bond-Related Options
We can also advise on other offshore bond-related options, including:
- Investments in other denominated currencies;
- Opportunities for those who work or move abroad and wish to protect their income and gain overseas assets from UK tax;
- UK expats intending to return only on retirement who wish to keep investments offshore;
Options for those married to a non-domicile in the UK who may be able to gain tax advantages by placing assets in the name of their spouse.