What is an Investment Bond?
Investment Bonds are issued by Insurance Companies. It is a lump sum investment which gives the client access to a wide range of funds.Clients can switch between funds without incurring any charges or any income or capital gains tax. Money can be withdrawn at any time (subject occasionally to a penalty – see below)
Insurance Bonds appear to be simple products and are frequently sold by Banks or Building Societies, as you will see from the answers to the questions below, they are far from simple. If you are thinking of investing in an Insurance Bond ask Nicholls Stevens to give you a review of the scheme and the charges before you commit yourself. The small fee we will charge could well save you £100s of pounds and a number of sleepless nights
Nicholls Stevens would normally prefer clients to invest directly into collective investments but there are times when Insurance Bonds are appropriate for example within trusts and in these circumstances if we are satisfied that they suit the client needs we will recommend them.
Your questions answered:
Can I achieve an income?
You can withdraw up to 5% of your original investment each year and defer tax until you exceed this limit or cash in the Bond
Can I have access to my investment?
Yes, but sometimes the investment has high charges(commission) which means you incur penalties if you withdraw in the first 5 years.
If you have invested in a With Profit Fund, the Insurance Company may impose a market value adjustment(MVA) at the time of withdrawal, some schemes include penalty free MVA periods at the end of 5 or 10 years investment
If you have invested in a commercial property fund, the insurance Company may have the right to defer paying out your capital for up to 6 months at the time of a fall in the market
What are the tax implications?
When you cash in or take a withdrawal in excess of 5% of the original investment, there may be a charge to higher rate tax , both basic and higher rate tax will apply if you have invested in an off- shore Bond. You will need to take advice before deciding to cash in your investment
What about charges?
Bonds taken out before 2014 my have high initial charges so you need to be aware of this if you are cashing in your plan
What about risk?
You can select a fund to suit your attitude to risk.