Investment Bond

There’s no personal liability to Capital Gains Tax or Basic Rate Income Tax on the gains earned in an investment bond wrapper.

A tax liability can occur when a gain arises following a ‘chargeable event’, which is defined as a withdrawal of more than 5% (the tax-deferred allowance) of the amount initially invested, the full or partial surrender of the bond, the death of the life assured, the maturity of the investment bond or its assignment to a third-party.

A chargeable gain is treated as income and is assessable for income tax. If a gain pushes your total income into the higher or additional rate tax bands, you may pay Income Tax on at least part of the gain.

If you withdraw money from a bond, your gain and the associated tax liability could be mitigated using your tax-deferred allowances, top-slicing, encashment over several policy years, or partial encashment across all segments vs the full encashment of individual segments.

Your entitlement to personal allowances and benefits such as Universal Credit can be affected if you earn a chargeable event gain. Hence, you must take professional advice before withdrawing money from an investment bond.

Onshore providers pay a ‘Life Fund Tax’, equivalent to the Basic Rate of Income Tax, on any income or gains earned on a bond’s investment funds. The provider pre-pays this tax, and as such, it is not reclaimable, so an onshore investment bond is not generally appropriate for a non-taxpayer.

This tax treatment depends on our current understanding of HMRC rules and practice, which is subject to change in future.

Offshore is a common term for a range of locations where companies could offer customers returns on their investments free from tax, including the Channel Islands, the Isle of Man and Dublin.

The tax treatment of an Offshore Investment Bond varies from one type of investment to another and from one market location to another. Offshore Investment Bonds are similar to UK investment bonds, but there’s one main difference. No Income or Capital Gains Taxes are paid on profits from the underlying investments, although there can be an element of Withholding Tax that can’t be recovered. Withholding Tax may be deducted from interest and dividends received by investment funds.

The preferential tax treatment of investments in an Offshore Bond means they can grow faster than an Onshore Bond. However, if you make a chargeable event gain, Income Tax at the basic, higher and additional rates may be payable.

This tax treatment depends on your circumstances and our current understanding of HMRC rules and practice and may be subject to change in future.

We ensure clear and straightforward communication, keeping you informed every step of the way.