Investment Bonds
Discussion
Our adviser is suggesting we put a chunk of cash in an investment bond (ISAs already maxed out). I *think* I understand how they work, but the premise for them being tax efficient is that you only encash them while you're a basic rate taxpayer. If you're still paying higher rate income tax aren't you going to get significantly more clobbered than if you just had equities and were paying CGT on the gain?
Onshore or offshore?
This article gives a good overview of their different tax treatments: https://www.mandg.com/pru/customer/en-gb/our-produ...
Honestly though, if your adviser hasn't properly explained the product to you, then you should tell them to try again. Keep asking them questions until you're totally satisfied - that's what you're paying for.
This article gives a good overview of their different tax treatments: https://www.mandg.com/pru/customer/en-gb/our-produ...
Honestly though, if your adviser hasn't properly explained the product to you, then you should tell them to try again. Keep asking them questions until you're totally satisfied - that's what you're paying for.
C69 said:
Onshore or offshore?
This article gives a good overview of their different tax treatments: https://www.mandg.com/pru/customer/en-gb/our-produ...
[b]
Honestly though, if your adviser hasn't properly explained the product to you, then you should tell them to try again. Keep asking them questions until you're totally satisfied - that's what you're paying for.[/b]
^^^^This article gives a good overview of their different tax treatments: https://www.mandg.com/pru/customer/en-gb/our-produ...
[b]
Honestly though, if your adviser hasn't properly explained the product to you, then you should tell them to try again. Keep asking them questions until you're totally satisfied - that's what you're paying for.[/b]
This!
If an investment is too complicated to understand, walk away!!
There was a thread not long ago about Investment Bonds or International versions ( offshore ) and Phil (?) wrote a very articulate and great explanation of the benefits.
Fwiw we invested in the Offshore variety ( Ireland ) about a decade ago and the premise iirc was that we could withdraw up to 5% pa ( and then rolled up if unused ) of the original investment as an alternative to income from elsewhere.
All such withdrawals were tax free.
If you went over that 5% then income tax would be due.
Fwiw we invested in the Offshore variety ( Ireland ) about a decade ago and the premise iirc was that we could withdraw up to 5% pa ( and then rolled up if unused ) of the original investment as an alternative to income from elsewhere.
All such withdrawals were tax free.
If you went over that 5% then income tax would be due.
alscar said:
There was a thread not long ago about Investment Bonds or International versions ( offshore ) and Phil (?) wrote a very articulate and great explanation of the benefits.
Found it, thanks. Again that's helpful.https://www.pistonheads.com/gassing/topic.asp?h=0&...
From that, this nails my concern: you absolutely have to have a plan in advance about how to get the gains OUT.
PhilboSE said:
So the product grows gross of all tax, and if you do so wisely, you can realise the growth tax free by judicious use of allowances. If you do it unwisely, you’re paying income levels of tax not dividend or cgt.
But, AIUI, it's not growing free of tax as the bond company has to pay 20% on all capital gains, so the growth is slower?Investment bonds can be useful to trigger when you pay tax, not so much if you pay tax. Tax deferred, not tax free.
Investments in a GIA are taxed on an arising basis, income is taxed each year whether you take it or not. Gains as you sell something.
Investment bonds allow you to accumulate returns and make fund switches internally, without triggering a tax charge at that time.
Onshore you are paying an effective 20% tax internally, so when you withdraw if you're a basic rate taxpayer there's no more tax to pay. Offshore are not taxed internally, but are taxed when you withdraw. If you have space within personal allowance that part can be tax free.
The 5% allowance per year it's been in place is really just letting you have your original money back without a tax charge. It's 5% of the sum put in, not 5% of the current value. Can be rolled up and taken in bigger portions later on.
Direct tax comparisons at the same tax band will likely favour GIA as dividend and CGT is lower than income tax rates. It's best used as a tool for manipulating when tax is due.
There's also the ability to assign some/all of the bond to a different person before encashment, meaning you can get the tax to fall on someone with a lower rate than yourself.
Finally, there's top slicing relief which effectively annualises the gain, meaning you may avoid/reduce going into higher rate tax.
Investments in a GIA are taxed on an arising basis, income is taxed each year whether you take it or not. Gains as you sell something.
Investment bonds allow you to accumulate returns and make fund switches internally, without triggering a tax charge at that time.
Onshore you are paying an effective 20% tax internally, so when you withdraw if you're a basic rate taxpayer there's no more tax to pay. Offshore are not taxed internally, but are taxed when you withdraw. If you have space within personal allowance that part can be tax free.
The 5% allowance per year it's been in place is really just letting you have your original money back without a tax charge. It's 5% of the sum put in, not 5% of the current value. Can be rolled up and taken in bigger portions later on.
Direct tax comparisons at the same tax band will likely favour GIA as dividend and CGT is lower than income tax rates. It's best used as a tool for manipulating when tax is due.
There's also the ability to assign some/all of the bond to a different person before encashment, meaning you can get the tax to fall on someone with a lower rate than yourself.
Finally, there's top slicing relief which effectively annualises the gain, meaning you may avoid/reduce going into higher rate tax.
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