Life Assurance Bonds

masuda

Hello,
I am looking for information on Life Assurance Bonds.
My father is 89 in a care home. We are in the process of selling his house. An IFA has suggested my father should get a life assurance bond with the proceeds from the sale of the house as these bonds are 'safe' and pay 5% interest tax free to lower rate tax payers.
Does anyone have any knowledge or views on this /
Thanks

ctdctd

Same situation here for my Uncle - my gut feeling was to bung it into 4.65% five year banks accounts but my Uncle has mentioned these bonds.

He's got an IFA who I will ask, but what does the panel think?

dunstonh

as these bonds are 'safe'

The life assurance bond carries no risk in itself. It is just a tax wrapper. A container for investments that you decide to place in them. It is the investments that carry the risk and these can range from very cautious to very speculative.

and pay 5% interest tax free to lower rate tax payers.

They do not pay any interest at all. The 5% is a annual capital withdrawal allowance that can be taken without creating any immediate tax charge. If the underlying investments make 10% than the 5% is well covered and the value goes up 5%. If the investments return say 3%, then the value will go down 2% as you are drawing more than the amount it made.

Does anyone have any knowledge or views on this /

The investment bond is a niche product to suit certain types of investor. The same investments that are available in investment bonds are available within ISA and unwrapped (in unit trust/OEIC) form. The main benefit is taxation but it is only a benefit if it suits your tax position.

The most commonly suited people for investment bonds are higher rate taxpayers who wont be in future years (they can defer the tax calculation until they are basic rate payers and avoid higher rate tax) or those that use their annual CGT allowance (bonds are exempt from CGT) or those that require investments in trust.

As your father is already in a care home, the life assurance bond will not avoid it being included in the means test (if means tested care applies).

S&S ISA beats investment bond every time. So, if ISA has not formed part of the recommendation then assume the advice is bad unless proven otherwise. The IFA should run a tax comparison between unwrapped investments and the investment bond to see which comes out best. Ask to see the results of this. Most advisers put this in their suitability report or make reference to it (so keep results in the client file but state in the report that there are tax advantages). If the adviser cannot produce the key benefits of the bond over unwrapped then walk away.