25th September 2023
HOW BONDS’ STRUCTURE AND TAX ADVANTAGES CAN HELP YOU PASS ON WEALTH
Investment bonds offer several benefits that some investors may be missing out on, and have become even more beneficial due to recent changes in tax regulations following the Chancellor’s decision to reduce the Capital Gains Tax (CGT) allowance from £12,000 to £6,000 this year and to £3,000 in April 2024.
MINIMISE INHERITANCE TAX
These changes will likely appeal to investors who want to minimise inheritance tax (IHT) liabilities when passing on wealth. The IHT nil-rate threshold has remained at £325,000 since April 2009, with no indications of future increases. As a result, more individuals are considering trusts to keep their money outside their estates.
Investors who have already utilised their ISA allowances and other tax-efficient wrappers, or those who have received substantial windfall payments, such as inheritance, could benefit from using investment bonds. Investment bonds primarily fall into two categories: onshore and offshore. The key difference is their tax treatment, which can significantly impact return.
Onshore bonds are subject to UK corporation tax. However, this tax is offset by your provider, which means you, as an investor, do not have to worry about it directly. While this may seem like an advantage, it’s important to note that the tax could lower your return compared to an offshore bond.
On the other hand, offshore bonds are issued from outside the UK. The returns from these bonds roll up gross of tax in the funds, with the exception of withholding tax. This can potentially offer higher returns compared to onshore bonds, depending on your personal tax situation.
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The value of your investment can go down as well as up, and you may get back less than you invested.
The tax treatment is dependent on individual circumstances and maybe subject to change in future.
Estate planning is not regulated by the financial conduct authority.