Investment Bond Wrapper & Supermarkets

MrMicawber_2

I am trying to identify what investment bond wrappers/supermarkets there are which offer a good range of funds at a reasonable cost. I have found Funds Network (quite a good range - not sure about charges), Standard Life (reasonable fund range - not sure about charges), Skandia/Selestia (good range but looks expensive) and AXA (limited range but OK'ish). Any views on the above and what have I missed.

EdInvestor

Following tax changes in the pre budget report these products are no longer suitable for most investors.

http://business.timesonline.co.uk/tol/business/money/savings/article2702029.ece

MrMicawber_2

Yes - many thanks and agreed, but they can be and I am trying to find those products which offer a good choice of funds at a decent price.

egamar

Don't buy from the FundSupermarkets themselves. Use them to research the funds you want, and then find a discount broker through whom you actually buy the funds. It's all genuine and above board. I used to use Allenbridge and they were just fine.

Allenbridge give you access to FundsNetworks and CoFunds.

I'm told elsewhere Hargreaves Landsdowne are also a "Fund Supermarket" but frankly I wonder if it's just a heavily disguised interface to FundsNetwork or CoFunds.

dunstonh

None of the fund supermarkets have a well priced bond wrapper.

Selestia has the closest match to unit trust pricing but as you can get bonds far cheaper than unit trust pricing, there is little reason to use it. Fundsnetwork uses Standard Life bond and has the awful restriction of only 12 switches allowed in the lifetime of the product. Cofunds uses the Legal & General product which is fine from a fund range point of view but comes in about 5th on pricing (better than going to L&G direct). AXA, NU, Clerical Medical and Friends Provident have the best pricing at the moment assuming you build a sector allocated portfolio (and subject to the funds you want). It also depends on the pricing the IFA in question has been able to negotiate and what their own charges are.

There are still plenty of reasons to use an investment bond. Its only CGT which is different to before. Income reduction is still a valid reason. I havent responded on the vote because the question doesnt make sense. Are they a good idea? Yes if your circumstances fit. No, if they dont.

MrMicawber_2

Thankyou very much - I was not aware that bonds were cheaper than unit trusts. I thought that by the time you had paid the initial charge, paid for the life insurance. paid for the commission etc etc that they were more expensive.

dunstonh

MrMicawber wrote: »

Thankyou very much - I was not aware that bonds were cheaper than unit trusts. I thought that by the time you had paid the initial charge, paid for the life insurance. paid for the commission etc etc that they were more expensive.

If you assume like for like distribution channels (so to avoid any bias caused by comparing a cheap distribution channel against an expensive one), then the best bonds can be cheaper. There will be some expensive versions though so you cannot make any assumption without checking.

EdInvestor

Of course gains within the wrapper are subject to 20% unreclaimable tax which is not normally payable outside the wrapper evn if helf direct rather than in an ISA.

dunstonh

EdInvestor wrote: »

Of course gains within the wrapper are subject to 20% unreclaimable tax which is not normally payable outside the wrapper evn if helf direct rather than in an ISA.

You mean capital gains are subject to capital gains tax at 20%. Income gains are not. A low risk investor with the bulk of the investments heavy in income would see little difference in the CGT changes.

EdInvestor

No, gains in a bond (and an endowment for that matter) are subject to 20% life insurance company corporation tax.

Nothing to do with with income or capital tax.The capital gains tax bit comes at the end on top. And of course there's no CGT allowance to mitigate it.

The same funds held direct or in a unit trust are subject to 18% CGT, but only after the annual allowance of 9k+ is used if gains are realised.

Investments in the bond are taxed 20% every year whether gains are realised or not and then again on maturity.

That's why they're now a dead duck.

dunstonh

No, gains in a bond (and an endowment for that matter) are subject to 20% life insurance company corporation tax.

Nothing to do with with income or capital tax.The capital gains tax bit comes at the end on top. And of course there's no CGT allowance to mitigate it.

You are twisting the information to read like people will be paying 20% on their returns which is not the case. Assets which are chargeable to capital gains will pay CGT. However a lot of the return can come from income and that can benefit from the 10% tax credit in the same way unit trusts do. Those wanting to reduce their income down can still use bonds as a means to do so. They may lose a bit on CGT (£200k with say 5% as growth means they are worse off by £200 a year.) but they can still benefit by avoiding higher rate tax on the income which can (£200k with say 4% income means they are over £1500 better off not paying higher rate tax). If you then couple in lower charges with say a reduction in yield of 0.8% over 10 years for a low risk investor with a bias towards income investments and compare that to unit trusts with a typical average amc of 1.5% then the bond can still come out favourable.

If the need exists, the bond can still be useful. However, for basic rate taxpayer or lower who is nowhere near the higher rate limit or age allowance reduction (over 65 years) the bond is far less attractive than it used to be. It really is an avoidance of higher rate tax or trust work now where the bond comes out best.

Income
Corporation tax at 20% on interest, overseas dividends and rental income.
UK dividends received with a 10% tax credit which satisfies the fund manager’s liability.
Annual management expenses can be set against income (except UK equity income) before corporation tax. There must be sufficient income for relief to be available.

Gains
Corporation tax at 20% on gains in the fund.
Indexation relief available to reduce the amount of gain liable to tax.