Monthly income from £140,000

dunstonh

thats an assumption - I read all the postings and in my opinion there is a degree of opaqueness in these products that makes them unattractive for me.

That has to be totally based on the mostly incorrect information that Ed has posted on this thread. You must have spotted that Ed ignored all the key facts posted and just repeated misinformation time and again.

Modern investment bonds have annual management charges like unit trusts. They have initial allocations to watch, just like unit trusts. The only other difference in charges is to look at what is charged over the first 5 years as there is often a limited period charge or exit penalty. That isnt difficult.

The OP's mother sounds as if she would be much better off with an investment bond because:
1 - the bond isnt included in a means test for pensions credit
2 - if you get pension credit, you get a range of other benefits
3 - it keeps her a non taxpayer so the money she has got in the bank has no tax deducted.

Others that can benefit from investment bonds:
1 - those requiring trusts (i.e. to reduce IHT liability)
2 - higher rate taxpayers
3 - investors who use their CGT allowance
4 - in other benefit (such as local authority care) which is means tested.

When used under the right circumstances, you can save a lot of money with investment bonds. When used incorrectly, they can cost you more.

If you want a vehicle, you buy one to suit your needs. You dont buy a 2 seater sports car if you have 4 children. You dont buy a motorbike if you are a furniture removal firm. Investments are bought to match your needs.

oldfella

thanks for the considered response dunstonh

the only example that applies to me is IHT.

my investments are in UT/OEICS - mostly equity income - I dont pay upfront fees and get trailing commission refunded.

is there an IB you might suggest I look at for comparable performance ?

Mike

dunstonh

Investment bond is just the tax wrapper. It can invest in the very same unit trust/oeic funds that you already know.

You are not paying any upfront fees and trail commission (actually you are because the cheapest provider still only rebates half but I know what you mean). The same can equally apply to investment bonds if you buy one the same way.

An advice version on 1% initial and 0.5% trail on £100k would see you get around 107.5% initial allocation. No bid/offer spread or initial charge and an annual management charge to much different to unit trusts/oeics. With a careful selection of funds and with the right provider, the reduction in yield would be comparable or lower than the unit trusts.

There are some providers that use the unit trusts/oeics themselves and just encase them in the tax wrapper (just as ISAs do with unit trusts). They have exactly the same annual management charges as the unit trust and initial charges (which can be rebated with commission rebate).

This is one of the reasons why we have repeated on this thread that saying that they are expensive is inaccurate. If you apply that principle to bonds, then equally it has to apply to ISAs, UTs/OEICS and SIPPs.

From a tax wrapper vs tax wrapper point of view, I find that less than 20% of my investments end up in an investment bond. ISAs and OEICs still win most of the time. Higher rate tax payers are the most common reason for me using a bond. Tiggs, another adviser here, uses them a lot but his business focuses heavily with estate planning. I dont know if he is watching this thread or not but I would expect him to say that he has saved hundreds of thousands of pounds over the years in tax by using a bond which would have been paid if a UT/OEIC had been held.

EdInvestor

I wouldn't bother oldfella.These bonds are a little catch 22 arrangement set up by the Revenue and the insurance cos to catch tax avoiders and charge them for doing it. The punter gets the idea from the advisor he is avoiding tax, but in fact he wouldn't pay it anyway if he didn't use the bond in most cases. Meanwhile the Revenue taxes the lifeco 20% directly on the money.

It's a nice little earner for both of them and most of the punters can't grasp what's going on because as you say it's all so opaque.

Here's an example:20% tax and no-one knows what's going on:rolleyes:

It's a fundamental and very important rule, never to invest in something you don't understand and Iu should stick with it if I were you..

dunstonh

See we what mean about Ed totally ignoring what has been posted.

jem16

EdInvestor wrote:

It's a fundamental and very important rule, never to invest in something you don't understand

I take it that's the reason you don't invest in a bond then?;)

Chrismaths

Here's an example:20% tax and no-one knows what's going on

I think you'll find I did - and explained.

The punter gets the idea from the advisor he is avoiding tax, but in fact he wouldn't pay it anyway if he didn't use the bond in most cases

So in about 80% of the cases then Ed? READ HOW OFTEN DH USES A BOND! What about the other 20%? You don't have the skills or knowledge to assess the difference, but continue to post as if everyone has the same circumstances as you. They don't.

ReportInvestor

Chrismaths wrote:

I think you'll find I did - and explained.

You're both bright, and an investment manager .

It might possibly be a mistake to assume that too many other readers followed your explanation with full attention & understanding.

Complicated industry products inevitably create ignorance among investors .

Chrismaths

You're both bright, and an investment manager

Aw shucks... And fair enough about the im bit.

It might possibly be a mistake to assume that too many other readers followed your explanation with full attention & understanding.

Complicated industry products inevitably create ignorance among investors

Again fair enough - I've never been the best at explaining, and if you re-read the thread you'll see that I don't like investment bonds as a rule - but I do take exception to Ed saying no one understands them because she can't. It's like the rules of cricket - the rules are hugely complicated and very detailed. However the concept is simple - score more runs than the opposition. With investment bonds, they essentially pay basic rate tax in the bond so unless you are a HR taxpayer, you don't pay any additional tax. Not that complex really.

I also take exception to her implying that they are never suitable - when in fact they are quite often suitable - in the cases that I and dh have outlined previously. I have never recommended an (onshore) investment bond in my career - but that's because I tend to be dealing with larger amounts of money where an offshore bond is more suitable. However, Ed believes that a HYP and direct investment is always the best way to go. Sometimes it can be, often it is not. You DYOR and make your own choice.

As to complicated products, that's partly the insurance industry's fault, but mostly the stupid and ludicrously complex taxation laws we have in this country. Bring on the flat tax I say. But a decent IFA should be able to explain enough of the workings to you to give you a good idea of how they work - the trick is finding a decent IFA!

EdInvestor

With investment bonds, they essentially pay basic rate tax in the bond so unless you are a HR taxpayer, you don't pay any additional tax.

But outside the bond there is no need for basic rate taxpayers to pay any tax at all.

This is because you have a tax free allowance of 8.8k annually for your realised capital gains (nothing to pay at all if you don't sell anything) and your dividends come with a tax credit, which pays the tax on them.

So most people will pay nothing.With the bond, you pay 20%and it's not reclaimable even if you are a non taxpayer.