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Investment Bonds

An Investment Bond is a collective investment in which the funds of many individual investors are pooled together.This pooling enables relatively small investors to benefit from the economies of scale made available to institutional fund managers.

Investment Bonds allow you to invest in either units of an underlying equity fund or into an insurance company's with profits fund.

The growth in With Profits Bonds is not directly related to the investment which is made in a mix of shares, property, fixed interest and cash. Instead, bonuses are declared on a regular basis and there is potential for a terminal bonus to be declared on encashment of the bond. Bonuses are declared on a relatively conservative basis so that funds can be held in reserve for years when stockmarket growth is unfavourable. This has the effect of 'smoothing' returns to investors over the years.

Unit linked bonds allow you to invest directly in asset classes and the growth of the bond is linked to the unit prices of the assets you hold. Assets are valued on a daily basis so unit price will rise or fall and therefore so will the bond value.

Investment Bonds are a useful tax planning tool and can also provide a regular tax deferred income as the Inland Revenue permits investors to take up to 5% of the capital as income each year for up to 20 years without an immediate tax liability. There are also other tax advantages if you decided to use offshore bonds (see below for more information).

There are many elements to consider when choosing a bond to include fund performance, enhanced allocation rates, charges, administration levels, number of funds available, financial strength of the provider and the flexibility of the contract.

Offshore Bonds are generally issued by subsidiaries of well known UK life assurance companies in places such as Luxembourg, the Isle of Man and the Channel Islands.

The main advantage of investing offshore is that the country in which the bond is held imposes little or no tax on the income or gains received in the underlying fund, thus allowing what is known as 'gross roll up'.This can be particularly attractive to higher rate taxpayers. UK residents are only taxed in the UK on any offshore income or gains which are brought back into the UK.

Offshore Centres are generally not covered by UK regulations and are usually subject to the supervision and compensation schemes of the country of origin. It is therefore important to get advice before investing in an offshore jurisdiction.

Investments in other denominated currencies is also possible however, exchange rate variations may cause the value of overseas investments to increase or decrease.

Those who work or move abroad may wish to pay as little tax as possible by protecting their income and gains on overseas assets from UK tax . This can be achieved as long as they do not bring the assets back into the UK.

If you are a UK expatriate intending to return only on retirement when your tax status might be more favourable, then keeping your investments offshore may be beneficial.
If you are married to a non-domicile to the UK, there are also tax advantages by putting non-UK assets in the name of your spouse.

 

Vintage Wealth Management Limited is authorised and regulated by the Financial Conduct Authority. FCA Number 593380. Registered in England and Wales No. 07879453.
The Financial Ombudsman Service is available to sort out individual complaints that clients and financial services businesses aren't able to resolve themselves. To contact the Financial Ombudsman Service please visit www.financial-ombudsman.org.uk