Urgent Advice Needed

Chrismaths

Ed, could you provide a RIY for a HYP if you use a stockbroker that charges a percentage fee, an account maintenance charge, a management fee - remember to include stamp duty as well.

You always like to compare the most expensive way of buying any other investment with the cheapest way of buying a HYP. So either:
A) start providing figures for the cheapest way to buy an investment bond
start providing figures for the most expensive way possible to buy a HYP
C) stop comparing apples and oranges.

Regards, Chris.

cheerfulcat

If you have money in the bank and you draw out more than the interest, your balance goes down. If you have a unit trust and you draw out more than it makes, the value will go down. Why do you think that the investment bond should be different to that?

dh, the problem is that the "income" is created by cancelling units and no IFA I have met has explained this, nor that it means that you are constantly eating directly into capital.

dunstonh

dh, the problem is that the "income" is created by cancelling units and no IFA I have met has explained this, nor that it means that you are constantly eating directly into capital.

And how does that differ from making capital withdrawals from any other product? Such as accumulation units on a unit trust or ISA.

Communication, or lack of, is nothing to do with the tax wrapper.

cheerfulcat

And how does that differ from making capital withdrawals from any other product? Such as accumulation units on a unit trust or ISA.

Communication, or lack of, is nothing to do with the tax wrapper.

Most people would not consider making capital withdrawals the same as taking an income. The industry sells investment bonds on this idea of taking a 5% " income ", without making clear that it is nothing of the sort; they even go so far as to say that it is " treated as a return of capital " by HMRC. Not that it is a return of capital, but that it is treated as such. This is IMHO very misleading and more than a lack of communication.

Having said all that, gwendolyne, if you want out of the bond you should consider Ed's suggestion - taking the 5% p.a. allowed is a good way of avoiding the MVR and getting your money out slowly. As others have said, you invested at just the wrong time (very easy to see with hindsight! ) and now is not a great time to cash in but taking the " income " option means that you are releasing some of the money without penalty while leaving some invested in the hopes of a better return than you have had so far.

EdInvestor

IMHO the structure of the wrapper itself does indeed give people the wrong impression.Most people think if they invest a lump sum it will earn interest ( if in cash) or dividends (if in shares) which they can withdraw to pay expenses without it affecting their capital.

This isn't the case with investment bonds.When you add in the high charges depleting the earnings of the investments within the bond to the withdrawals depleting the capital itself , it's not hard to see that all you need is a bit of a market fall for people's money to start disappearing quite rapidly.

As so many have found in the last few years.It doesn't really matter if the money was in WP funds (as was the norm before the market crash IIRC) or other funds.

IMHO investment bonds are for many people a dangerous product, and the WP version even more so, with its double dose of opacity.

dunstonh

Most people think if they invest a lump sum it will earn interest ( if in cash) or dividends (if in shares) which they can withdraw to pay expenses without it affecting their capital.

So again, the inexperience or lack of knowledge by some individuals doesnt make the tax wrapper a bad thing.

When you add in the high charges depleting the earnings of the investments within the bond to the withdrawals depleting the capital itself , it's not hard to see that all you need is a bit of a market fall for people's money to start disappearing quite rapidly.

What high charges?

As so many have found in the last few years.It doesn't really matter if the money was in WP funds (as was the norm before the market crash IIRC) or other funds.

So you are saying that nobody should invest in any unit trusts at all then?

IMHO investment bonds are for many people a dangerous product

Good job your opinion is very very wrong then. What is dangerous is your unqualified postings slating a product that you know little about.

EdInvestor

dunstonh wrote:

What is dangerous is your unqualified postings slating a product that you know little about.

I'll leave others to be the judge of that.:rolleyes:

gwendolyne_2

Thank You All So Very Much For The Advice Given. I Have Now Rung A Financial Adviser Who Is Calling At My House On Monday At Least Now I Have A Little Knowledge To Work With .once Again Many Thanks (i Will Let You Know What Comes Of It)

dunstonh

Ed, what sort of response is that?

You produce no facts to support your misplaced comments. You refuse to respond to points raised which highlight your errors and then you finish with a comment saying you will leave others to judge.

If you stuck £50k in the NU property fund 10 years ago, you would now have the following (before charges)
£139,129 if invested in the life fund. Average 10.77%
£147,021 if invested in a unit trust. Average 11.39%
ISA wasn't possible 10 years ago

So, before charges, the Unit Trust version looks better.

When you look at charges over that 10 year period the reduction in yield is:
0.80% on the investment bond
2.00% on the unit trust (quoted from Fid Funds network)

So, the investment bond is the equivalent of 1.20% p.a. cheaper than the unit trust and if you take that 1.2% p.a difference off the average returns,
that means the investment bond gave a 0.58% p.a. higher return over 10 years.

The Investment bond also gave no CGT liability whereas the Unit Trust does give rise to a potential CGT liability. Plus, if you were a higher rate tax payer at the start but not at the end, you had no higher rate tax to pay on the investment bond but would have done on the unit trust until such time you were not a higher rate taxpayer.

Investment bonds can be used with trusts which can save hundreds of thousands of pounds in inheritance tax. Plus you can get offshore versions which allow gross roll up.

Investment bonds also have no impact on age allowance.

'll leave others to be the judge of that.:rolleyes:

So, back to that comment. You look at the most expensive version of the product and measure them all by that. You look at one individual fund and measure them all by that. Every time this is raised, you produce no factual information. Your comments are not balanced with any pros and cons.

My summary would be that investment bonds can be cheaper and they can be more expensive depending on where you buy them and who you use as the provider. To some, they are very tax efficient. To others they are not as tax efficient and shouldn't be used. It depends on the tax circumstances of the individual and why they are investing. The same investment funds on ISAs and Unit Trusts are available in investment bonds. So, the only difference is taxation on charges and if they work in your favour, bonds are better, if they are not in your favour, then the bond is not as good.

EdInvestor

Gwendolyne

gwendolyne wrote:

I took out a Britannic Portfolio Investment Bond in the year 2000 I put in 26,597.23 I asked them what it is worth now and they gave me this figure of 26,892.66 They also said that I will have to pay MVR as it for ten years,:

Looking at your original query, does the 26,892 figure include the MVA, or will the MVA reduce it further - to what?

Were you told about the MVA when you were sold the bond? Were you aware that you would have to lock the money away for ten years to avoid it if it was imposed -or was there a possibility you might need the money before that?

Were you a basic or higher rate taxpayer when you took out the bond?

Dunstonh

The virtues of the investment bond tax wrapper for a basic rate taxpayer with a lump sum the size of Gwendolyne's are not immediately apparent.

Basic rate taxpayers' liability for tax on dividend income has already been met and they would have to make a capital gain now of 9k a year to be liable for capital gains tax.Not likely, is it, on 25k - that's a 36% rise in a year. To make matters worse, investment gains within the bond are taxed - which they very probably wouldn't be if they were outside the bond. It is thus very unlikely there would be any tax advantage in using this wrapper for a BRT with this amount of capital.

In addition these products are often sold on the basis they offer a "tax free income" - a 5% (or more) withdrawal per annum.This is not "income" - it is withdrawal from capital, that is why there is no tax payable on it.This aspect appears often to mislead people as we have discussed above.