Tax Savings Using An Investment Bond

If you have investment income that is taxed at the higher rate of either 40% or 50% then it may be worthwhile considering making an investment into an Investment Bond. An Investment Bond is a single lump sum payment into a Non-qualifying investment policy normally managed by an insurance company.

There are substantial tax advantages that can be made from an Investment Bond. Withdrawals of up to 5% of the initial investment into the Investment Bond can be free of tax each year. These withdrawals can be used to replace income. Tax is payable on the increase in the value of the Investment bond at the earlier of:

A - 20 years, or

B - if the policy is cashed in, fully or partly

It is possible to replace income that is currently taxed at a rate of 40% or 50% with withdrawals from the Investment Bond on which no Tax is Immediately payable. It is also possible to plan in advance so that any gain on the surrender of the Investment Bond is made in a tax year in which it will be taxed at lower tax rates, 40% or less.

Whilst we can only comment on the tax savings that could be achieved by using an Investment Bond, if you are contemplating such an investment we would recommend you contact Jon Moore in our Wealth Management and Financial Planning Team.

Updated 28/09/10

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