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Investment Bonds
An investment bond is technically a single premium life assurance contract although the life cover aspect is only nominal. Bonds are collective investments in which the investments of many individual investors are pooled. This pooling enables relatively small investors to benefit from the economies of scale made available to institutional fund managers.
A wide choice of managed, general and specialist funds are available offering investment opportunities in equity, property and fixed interest securities. Bonds enjoy the facility to switch between these internal insurance company funds at a reasonable cost if desired. Although classed as single premium investments, 'top up' facilities are offered for further amounts to be invested either on a regular or ad hoc basis.
The underlying funds of Investment Bonds are subject to tax within the fund on income and gains. Any 'income' you need is achieved by stripping the required amount from the bond. In effect you will be drawing on the capital you invested for tax purposes. Although, it is possible to draw income from the investment, it is most likely to be in your best interest to defer taking income from the bond for at least the first 12 months should you decide that this is required.
Current legislation allows 5% of the capital to be withdrawn for up to 20 years with no immediate liability to tax. Withdrawals in excess of this are only taxable if they take you into the higher rate tax band. With careful planning, it is possible to mitigate this liability. In any event if a gain arises, it is only liable a further 20% taxation.
