Investment Bonds

Supernova

The chap phoned me yesterday to ask about the Bond and PHI policies he recommended. My company has a comprehensive PHI scheme after the 26 weeks SSP and I said I was still thinking about the bond. I said he hadn't really explained why a bond was particularly suitable for me but he didn't seem to take it on board.

The question still remains though. How do you find a decent IFA?

dunstonh

the question still remains though. How do you find a decent IFA?

Its a good question and its a hard one to get an absolute answer. How do you find out if anyone is good at their profession?

Word of mouth and reputation are starters. Avoid national/regional firms as these tend to be salesforce driven. After that, give them a test. Ask them up front if they work on the new model basis. If they dont know what that is, then the answer is no. It also means that they are not up-to-date on industry matters. Ask them how they would build the portfolio. See what answers you get. Ask to see the research they have and why that provider was chosen instead of others.

You have some good information on this thread. That should serve you well.

EdInvestor

Regarding investment trusts, it's rather unfortunate to say the least that IFAs don't recommend them as they are cheaper, and more particularly at the moment for people like Mus, they offer a good selection of commercial property trusts.

Several of the big insurers have property ITs, eg Scottish Widows, Std life, F&C, AXA

At the moment there are not many property unit trusts. Most people are thus investing in property funds via their pensions or via these expensive investment bonds.The ITs offer a way round this.

You need an account with a broker to do this, as they are bought and sold like shares.The broker https://www.squaregain.co.uk is a no annual fee discount provider.You can also buy funds and shares through this discount broker, and it will rebate initial and sometimes annual charges back to you. :)It's ISA fee is only 25 quid.

So then it would be a question of looking for some good funds to invest in.

dunstonh

Regarding investment trusts, it's rather unfortunate to say the least that IFAs don't recommend them as they are cheaper, and more particularly at the moment for people like Mus, they offer a good selection of commercial property trusts.

..and pay higher rate tax on them. As has been said in the posts, its not a case of don't but a case of can't.

At the moment there are not many property unit trusts. Most people are thus investing in property funds via their pensions or via these expensive investment bonds.

As has been pointed out, bonds dont need to be more expensive. Indeed, property funds in bonds tend to be a lot cheaper than in Unit Trusts.

So, you are suggesting a course of action which is more expensive than the other options available.

EdInvestor

He's got a 9k annual Capital Gains Tax allowance before he's due to pay any tax, so I don't think we need to worry too much at this stage, do we?

On another point

I have a £56K endowment mortgage due to mature in 6.5 years with a £9K-£19K projected shortfall - I'm on variable 1% above base.

If Mus would like to post some details about this I'm sure we can get it sorted here.

Insurer it's with
Guaranteed sum assured
Declared bonuses
Surrender value (ring up and ask)
Maturity date
Monthly premium

dunstonh

He's got a 9k annual Capital Gains Tax allowance before he's due to pay any tax, so I don't think we need to worry too much at this stage, do we?

£28k invested would have grown by over 9k in the last year with a half decent portfolio. Outside of bond, it would require buying and selling of the holding frequently and declaring the CGT allowance was being used. Buying and selling involving costs.

Also, you havent taken into consideration higher rate tax on the distributions.

EdInvestor

A 32% gain, really.

Perhaps Mus had better forget about looking for an IFA and just consult you.

Of course you don't have to pay any tax unless you realise the gain.Some people like to realise gains within their allowance annually, others don't bother with long term investments - what's the need? Some investments may make losses which can be offset.

Higher rate taxpayers (does this apply to Mus?) pay 25% tax on divis and basic rate taxpayers pay nothing.

Obviously he should max out his ISA every year.

Don't let the tax tail wag the investment dog.

dunstonh

A 32% gain, really.

Perhaps Mus had better forget about looking for an IFA and just consult you.

32% hasnt been that hard to get over the last couple of years. I did a valuation report yesterday for someone averaging 35.9% p.a. for the last years. That portfolio was nothing special and just about medium risk.

Higher rate taxpayers (does this apply to Mus?) pay 25% tax on divis and basic rate taxpayers pay nothing.

Mus said in an earlier post: "earn £54K." Therefore higher rate taxpayer.

Don't let the tax tail wag the investment dog.

Of course not but when the same investments are available across the tax wrappers then what is the point of paying unnecessary tax. You want Invesco Perpetual Income fund? You can get it in ISAs, Unit trusts, SIPPs, Personal Pensions and Investment bonds. Same fund. Only difference is the charges, taxation and how the maturity proceeds are paid (in case of pension). That fund only being mentioned as an example. You can replace that example with any of the major UK funds.

Oh btw, I did an investment bond today with a reduction in yield of 0.1% p.a over 5 years. That would not be achievable on the same unit trust funds used. This is why I continue to remark that investment bonds can be cheaper than unit trusts when used correctly.

baby_boomer

dunstonh wrote:

I did an investment bond today with a reduction in yield of 0.1% p.a over 5 years

How can I get one of those?

EdInvestor

I still don't see the point of the wrapper for someone like Mus.With the IB you can take 5% out "tax free" from your capital.

But outside the wrapper, you can cash in 9k a year in capital gains tax free anway- so if you have a 100k fund, that's a 9% withdrawal from capital tax free p.a.

A higher rate taxpayer pays 25% tax on dividend income.So if his 100k is earning a 5% dividend yield of 5k, his tax bill will be a teeny 1,250.

Cheaper than the charges on the bond, isn't it? And he doesn't have to invest for a divi yield of 5% - that's high, he can invest in growth shares that don't pay divis, so he will incur zero tax.

For a basic rate taxpaper there's no tax on divis at all. So the BRT can take an annual payout from a fund of 100k of 5k in divi income plus 9k in capital gains, total 14k, all tax free, no bond wrapper required.

And if he's getting a 32% return then his fund is also showing healthy growth.