Aviva portfolio investment Bond

mailman1962

Hi, can anybody advise me if i,m doing the right thing investing in an aviva portfolio step down bond, I,m still within my cancellation period. Thinking of putting 20 grand in , and not touching it, would this be a sound investment . Thanks Chris

Loughton_Monkey

It depends what you are trying to achieve. This is technically an 'insurance' product. Were you given any alternative investment vehicles?

I can only assume your IFA is remunerated on commission.

jem16

mailman1962 wrote: »

Thinking of putting 20 grand in , and not touching it, would this be a sound investment . Thanks Chris

Probably unlikely considering the amount. Investment bonds are better value with at least 6 figure amounts.

However lots more info would be required such as;

1. Are you a higher rate taxpayer?
2. Have you utilised your full ISA allowance?
3. What age are you?

What would be the reason behind using the investment bond wrapper?

dunstonh

About 5 years ago, the Aviva portfolio bond was one of the cheapest on the market. However, they have reduced the terms in recent years and it barely makes mid table nowadays.

Thinking of putting 20 grand in

That is very low for an investment bond tax wrapper. What is it about the bond tax wrapper that makes it better than the ISA or unwrapped OEIC? Has a cost/tax analysis been completed?

would this be a sound investment

You havent actually told us anything about the investments. Just that tax wrapper (bond) and the administrator (Aviva) for it.

mike88

Disaster. My wife bought one 10 years ago and it returned on average around 3.5% per annum. It depends of course on the constituent elements of the Bond but they are notoriously poor investments. These Bonds are sold mainly by Financial Advisors and Banks to the financially nieve - my wife wanted something simple and even she can see she probably would have got a better return by saving through a Building Society. Most people on here would probabably advise long term investing in stocks and shares ISAs through a discount broker such as Hargreaves Lansdown; that is what I would do but it all depends on an individual's circumstances.

dunstonh

Sorry mike, I am going to have to disagree on a few points (or at least add clarity).

Disaster. My wife bought one 10 years ago and it returned on average around 3.5% per annum. . It depends of course on the constituent elements of the Bond but they are notoriously poor investments.

The tax wrapper does not make any money or lose money. It contains your investments. There are about 150 odd investment funds available with Aviva. Most of your typical mainstream funds including some of the best performers in that period. The very same funds available from HL who you mention. So, if they are good enough for HL then why not Aviva?

These Bonds are sold mainly by Financial Advisors and Banks to the financially nieve

The bonds should be sold to those who require the tax advantages of the bond tax wrapper. As the same investment funds are available on ISAs, unwrapped and other tax wrappers, the focus should be on the tax position. As it happens, 3.5% net of tax over 10 years may actually not be bad for many investments in that period (we cant saw without knowing the investments)

I do wonder if a £20k bond could actually be the right thing as bonds are typically better towards 100k plus. It is a minority tax wrapper. However, its possible it could be right.

At this point though you cannot claim it is a bad investment or good investment as the investment has not been mentioned either in the ops post or your own post. All we have so far is the tax wrapper and the provider.

mike88

dunstonh wrote: »

Sorry mike, I am going to have to disagree on a few points (or at least add clarity).

The bonds should be sold to those who require the tax advantages of the bond tax wrapper.
I do wonder if a £20k bond could actually be the right thing as bonds are typically better towards 100k plus. It is a minority tax wrapper. However, its possible it could be right.

At this point though you cannot claim it is a bad investment or good investment as the investment has not been mentioned either in the ops post or your own post. All we have so far is the tax wrapper and the provider.

Thanks I did say that it all depends on the individual's circumstances. But for £20k what exactly is the advantageous tax position? I seem to recall having to include the surrender details of this Bond on my wife's tax form as she was a higher rate tax payer and she got taxed on it. You can even be taxed if the Bond loses money but don't ask as the details are long forgotten.

Should not the person use up their ISA allowance first by investing in someting more appropriate (again depending on circumstances)? It is of course dangerous to offer advice without knowing the precise circumstances of the OP.

It should also be pointed out that if access is required to the money there are MVAs (read financial penalties) to consider and that can be expensive eating considerably into any profit. MVAs are payable even if the Bond loses money. On the face of it these are very bad investments in my view and are considered by many to be the kind of thing people bought in a bygone age.

As a financial advisor (and a helpful one at that given your previous posts) I would expect you to disagree. Sorry!

dunstonh

But for £20k what exactly is the advantageous tax position?

With the caveat that I do think its unlikely given the small amount, it could be the person is a higher rate taxpayer and wants to use a high proportion of fixed interest investments and has fully utilised their ISA allowance. Or they use their CGT allowance annually or they are over 65 and close to the age allowance reduction figure or they need a trust arrangement.

I seem to recall having to include the surrender details of this Bond on my wife's tax form as she was a higher rate tax payer and she got taxed on it. You can even be taxed if the Bond loses money but don't ask as the details are long forgotten.

The bond defers the tax until a chargeable event occurs (like surrender). One of main gainers would be someone who is a higher rate taxpayer now but will be a basic rate later. They can use the bond, defer the tax until they are a basic rate taxpayer and at that point create a chargeable event. There is no further liability to tax if the person remains a basic rate taxpayer for that year after a top slicing relief calculation. So, it can be used to avoid higher rate tax. However, if you create a chargeable gain if you are still a higher rate taxpayer then you have to pay the high rate tax.

Should not the person use up their ISA allowance first by investing in someting more appropriate (again depending on circumstances)? It is of course dangerous to offer advice without knowing the precise circumstances of the OP.

ISA is top of the pile (except with trust work, retirement provision or specialist investments)

It should also be pointed out that if access is required to the money there are MVAs (read financial penalties) to consider and that can be expensive eating considerably into any profit. MVAs are payable even if the Bond loses money.

The bond has no MVR. MVR is charged on just one of the funds. If you dont use that particular fund then there is no potential for an MVR.

On the face of it these are very bad investments in my view and are considered by many to be the kind of thing people bought in a bygone age.

You are looking at it from the investment point of view. Not the tax wrapper point of view. In theory that fund could be held in an ISA and still suffer an MVR (and for a while it was available in an ISA). The tax wrapper is one thing. The investment is another. The investment you had is largely obsolete nowadays (still suitable for a small niche market). However, it would be obsolete in any tax wrapper. It doesnt make the tax wrapper obsolete.

As a financial advisor (and a helpful one at that given your previous posts) I would expect you to disagree. Sorry!

It's more a case of what you say is correct but you are blaming the wrong thing. You are blaming the tax wrapper when you should be blaming the investment. The tax wrapper doesnt make or lose money. It is just a container for the investments you place inside of it. You can have the same investments in an investment bond as you can hold in ISA, pension or unwrapped.

mike88

dunstonh wrote: »

The bond defers the tax until a chargeable event occurs (like surrender). One of main gainers would be someone who is a higher rate taxpayer now but will be a basic rate later.

This illustrates the difficulty. If you take out a Bond in your 30's you might have to wait until your late 60's when you retire to reap the benefit in which case a pension would be a better investment.

dunstonh wrote: »

ISA is top of the pile (except with trust work, retirement provision or specialist investments)

dunstonh wrote: »

You are looking at it from the investment point of view. Not the tax wrapper point of view.

dunstonh wrote: »

It's more a case of what you say is correct but you are blaming the wrong thing. You are blaming the tax wrapper when you should be blaming the investment.

I regard all savings as planning for one thing or another especially long term investments such as pensions and Bonds. Again this illustrates the point that we are unaware of the OPs circumstances. I'm not blaming anything. I'm pointing out that there are better investments out there and you seem to agree when you say pensions and ISAs are top of the pile.

dunstonh

This illustrates the difficulty. If you take out a Bond in your 30's you might have to wait until your late 60's when you retire to reap the benefit in which case a pension would be a better investment.

Correct. However, you could be in your 50s and know you are going to be a basic rate taxpayer in 8 years time and the bond wrapper may make perfect sense. Or maybe you are in your 30s and you use your ISA each year and want the offshore bond version so you get gross roll up over the years. The whole point of tax wrappers is that you pick the one that is right for you.

I regard all savings as planning for one thing or another especially long term investments such as pensions and Bonds.

That is fair enough. However, the tax wrapper is not an investment. It is just a container for the investment.

I'm pointing out that there are better investments out there and you seem to agree when you say pensions and ISAs are top of the pile.

I am saying that its probable that the tax wrapper is wrong. Not the there are better investments as the OP has failed to mention investments. For simplicity sake, lets say he is investing in JPM Natural Resources in the Aviva Bond. That is available in pension, ISA and unwrapped form. So, the investment may not be wrong. Just the tax wrapper may be. Until the OP mentions what the investment is, we cant comment on its suitability. We can only comment on tax wrapper suitability and we are guessing it is unlikely given no mention of ISA and the small amount and no trust requirement.

mailman1962

Hi I,m not an high rate tax payer, 48 years old and have used my ISA allowance for the year .The bond is the Aviva with - profit s4. The policy is divided into a number of policies, referred to as segments/clusters. What else do you need to know to form a judgement on it . If I cancel within the 30 days , will I get the full 20000 grand back ? Thanks