05/05/25
News, Resources, Insight and Opinion from Browning Financial Planning
Investment Bonds
05/05/25
An investment bond is a packaged investment offered by a life company as opposed to an investment company. They work differently to investment company package products (known as General Investment Accounts or GIAs).
Investment bonds are the preferred investment vehicle for trust investments. Trusts have many benefits but the taxation within a trust investment is high, for example income tax is chargeable at 45%. However, any income produced from an investment bond is classed as return of capital and therefore no income tax is payable within the trust.
Investment Bonds are also excluded from any means-testing for care fees though if you expressly take one out to avoid care fees, you will fall foul of "deliberate deprivation" rules and the bond will not be excluded. Also if the local authority ignores the bond in the means-test, they insist that you cannot access it either to pay for care.
Inheritance Tax planning is becoming more and more important and investing lump sums into trust means investing in an investment bond. There are many different types of trust with varying types of flexibility, access and IHT efficiency.
Following the recent increase in CGT from 10% to 18% for basic-rate tax-payers, we now consider the investment bond to be a viable alternative to a GIA (General Investment Account).
One of the major criticisms of old-style investment bonds is that they were often invested in poor value with-profits funds or shockingly poorly-performing life funds. It is now possible to invest in the same funds we recommend in our model portfolios but via an investment bond. Sometimes there can be a cost to a surrender a bond, we would check this for you before you did anything.
One of our main jobs is fixing broken portfolios and many of the investment bond portfolios we see are massively broken. So, if you have held a traditional investment bond for some time and want to get it fixed, please get in touch.