Independent Financial Advisors - IFA Bolton, UK

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UK Investment Bond

A UK Investment Bond is a single premium investment offered by most authorised life assurance companies as a life assurance policy with no specific maturity date. As such it needs to specify a life (or lives) assured and on death they generally pay 101% of the bond’s value as the benefit.

Investment Bonds are a flexible tax-efficient vehicle that enable investors to pool capital and obtain access to professional fund managers and economies of scale. They offer a wide spread of investments which enables investors to diversify their portfolio, which should have the effect of reducing risk.

Investment Bonds are primarily designed to provide capital growth. However, the structure of the investment is such that it can provide regular withdrawals as an effective income stream.

The amount that can be withdrawn is limited to the value of the bond however, withdrawals of up to 5% of the original capital investment can be taken each year until the capital sum has been utilised without an immediate liability to income tax. This 5% “allowance” may be carried forward from previous years in which the "allowance" was not fully used. Therefore, a higher rate taxpayer can defer a potential tax liability until the bond is ultimately realised for cash.

As the Bond pays tax internally, there is no further tax liability to Basic Rate Taxpayers, however Higher Rate Taxpayers may have a further liability on encashments from the Bond.

Individual investors are not liable to capital gains tax with all gains being treated as income.

There are Unit Linked, With Profit and Distribution Bonds available.

- Unit Linked Bonds

The value of life assurance policies can be linked to the performance of units in life company funds.

With a unit linked policy, the premium buys units in the fund of your choice. This might be run by the life office itself or it might be invested in a unit trust or OEIC run by the life office or another institution.

- With Profits Bond

With Profits bonds provide an opportunity to share in the profits of an insurance company’s fund, and are an attractive method of indirect investment into a spread of underlying assets. This gives access to good, steady growth but with the risk reduced by broad asset spread and professional management.

- Distribution Bond

A Distribution Bond distinguishes between income and capital so that the income paid reflects the income generated by the fund. This leaves the income intact, although this may still rise or fall in value.

The money is invested in a special distribution fund where the underlying investments are spread widely to give a balance between reward and risk, by including equities, gilts, fixed interest, index-linked and cash funds.
 
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