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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.

Investment Bond versus other investments

Advice – Unit Trusts/OEIC v Investment trusts v Investment Bonds

Consider Unit Trusts/OEICs before considering other diversified pooled investments or tax wrappers such as investment bonds. Nowadays almost all of the investment funds offered within investment bonds can be bought directly as unit trusts or OEICs (open ended investment companies). Increased annual charges on unit trusts and OEICs mean they may not be cheaper than investment bonds in the long term. But they are much more flexible. You can take your money out of a unit trust or Oeic at any time without penalty.

Investment Trusts are a useful vehicle for people who want to invest in the stock market over the medium to long-term, who want to spread their costs and risk, minimise charges, and who don't want to have to spend too much time monitoring their investments.

Different situations arise whether you are non-, basic or higher rate taxpayer and in the former two there could well be a distinct tax advantage to hold UT’s and OEICs over investing through an Investment Bond. From a capital gains tax perspective there are distinct advantages for investment trusts.

The other advantage is that no capital gains tax is paid by the fund managers and though you are personally liable to tax, your annual capital gains tax allowance means you can take these gains free of tax each year, which you could use as a tax free ‘income.’ Unit trusts and OEICs can also be held in Individual Savings Accounts (ISAs) where they are sheltered from most income tax and all capital gains tax. Interest paid out on bond funds within an ISA is tax free and there is no further tax to pay on any dividend income on equity funds. All capital gains within ISAs are tax free.

Before you buy an investment bond for investment purposes, you should make full use of your annual ISA allowance and also consider whether you couldn't achieve your objectives better by using Unit Trusts, Investment Trusts or OEICs. Advisers get paid less commission on these than investment bonds, so challenge them.