When it comes to structuring your wealth, most people are familiar with pensions, ISAs and direct investments.
Yet there’s another option that can play an important role in your financial planning, the investment bond.
An investment bond is a type of life insurance policy used as an investment vehicle. Instead of providing a payout on death, it allows you to invest a lump sum with an insurance company, which then grows in value through a chosen mix of funds.
While technically structured as insurance, its main purpose is to provide a tax-efficient way of investing and drawing income.
Although often overlooked, investment bonds can offer flexibility around tax, income and succession planning.
Used wisely, they can complement your existing portfolio and help you make the most of your money.
Managing tax more flexibly
One of the main attractions of an investment bond is the ability to defer Income Tax until a “chargeable event” occurs. This puts you in control of when tax is payable, which is useful if you expect to fall into a lower tax band later in life or if you want to manage your overall income each year.
There’s also the option to withdraw up to five per cent of the original investment each year for 20 years without triggering an immediate tax bill.
For many investors, this provides a steady, tax-efficient income stream while the bond continues to grow.
The offshore advantage
Offshore bonds, often based in the Isle of Man, Guernsey or Dublin, grow virtually free of local tax.
They may also give access to a wider range of global funds and multi-currency options, making them particularly useful for those with international assets or family overseas.
Offshore bonds can also be passed to family members in lower tax brackets or placed in trust to help with inheritance planning.
Points to weigh carefully
As with any financial product, investment bonds aren’t perfect. Gains are taxed at Income Tax rates rather than Capital Gains Tax, which means timing withdrawals carefully is key.
Offshore options can also carry higher charges than direct investments, which may reduce overall returns.
Why consider them?
If you’ve already made full use of your pension and ISA allowances, investment bonds offer another route to grow wealth tax-efficiently while maintaining flexibility.
To explore whether they could be a good fit for your portfolio, get in touch with our team.