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This website contains information which may or may not be applicableto your own situation and circumstances.

Any information or advice on this site does not constitute a personal recommendation. If you have any doubts as to whether a product or service is suitable for you, please seek independent advice.

Bond Advice

Investment / With Profit Bonds

Investment Bonds are widely recommended by advisers as they pay commission, of differing levels but as high as 7-8%. As a result charges can be very high with some companies and often this is passed off as ‘free advice’ where the adviser states he/she is remunerated directly from the provider “at no cost to you” the consumer.

Of course this is a lie! First of all, if you do not pay a commission (you will not with us at completeadviser.com) then your charging structure will improve dramatically, and your projected returns will improve. If you want to know what you are being charged then look at the reduction in yield on the illustration – the difference between the 6 or 7% projection and what the return will be after charges – say 3.8-5% - This reduction in yield or charges therefore decrease the projected return by around 0.75-3.2% every year!!

Therefore commission has a huge impact on charges and thereby on investment return.

There is also a big argument about investment bonds being less tax efficient than unit trusts/OEICs and Investment Trusts. This is because Investment bonds pay only corporation tax at their headline rate. This used to be an advantage until 6th April 2008, when the government changed the rules and investments which pay CGT (now locked at 18%)rather than Corporation Tax like UTs/Oeics and IT’s became more efficient.

Investment bonds may be recommended in a number of situations:

• If you are retired and want a supplementary income, but be aware of the danger of falling into the age allowance ‘trap.’ Seek advice
• If you are an active investor already utilising your annual capital gains tax allowance. Using an investment bond to manage your money will mean you will not liable for capital gains tax when you make switches between funds.
• If you are trying to shelter capital from inheritance tax through trusts.
• If you are a higher rate taxpayer seeking an extra income, an investment bond may be suggested, so you can take advantage of the rule that allows 5 per cent annual withdrawals, for twenty years, without any immediate tax liability.
• If you are an investor who is likely to need long term care. Life insurance policies will not normally be counted as part of your means when your eligibility for local authority funding is assessed. Although there are avoidance rules CLICK HERE

MORE INFORMATION IS AVAILABLE HERE on Taxation of investment bonds.