Bonds

cfw1994

Curious my search suggested no finds...maybe search is broken!

I confess to being less than knowledgable about 'bonds'.
I was unaware (until a retired pal mentioned it!) that after a certain amount of time (not sure how long!) they allow you to withdraw 5% (of the original capital) with no tax payable each year.
He mentioned https://www.pru.co.uk/investments/investment-products/prudential-investment-plan as an example. A brief skim suggested to me that capital could be at risk...

Any wise words for someone approaching The Time? (maybe too late to consider!?)
Any good bonds to recommend?
Am I looking in the wrong part of MSE?!

HappyHarry

cfw1994 wrote: »

Curious my search suggested no finds...maybe search is broken!

I confess to being less than knowledgable about 'bonds'.
I was unaware (until a retired pal mentioned it!) that after a certain amount of time (not sure how long!) they allow you to withdraw 5% (of the original capital) with no tax payable each year.
He mentioned https://www.pru.co.uk/investments/investment-products/prudential-investment-plan as an example. A brief skim suggested to me that capital could be at risk...

Any wise words for someone approaching The Time? (maybe too late to consider!?)
Any good bonds to recommend?
Am I looking in the wrong part of MSE?!

I think your pal is talking about Onshore Bonds and/or Offshore Bonds.

These are investment tax-wrappers that can hold a range of investments, either insured funds or OEICs/Unit Trusts depending on the provider.

For most people, ISAs, unwrapped investments and pensions tend to be more tax-efficient. However, these onshore/offshore bonds do have a place in investing for some, depending on circumstances

Note: These tax-wrappers shouldn't be confused with investments such as government bonds, corporate bonds, mini-bonds, fixed-term bonds, premium bonds and various other things describing themselves as 'bonds'.

dunstonh

I was unaware (until a retired pal mentioned it!) that after a certain amount of time (not sure how long!) they allow you to withdraw 5% (of the original capital) with no tax payable each year.

Yes. They used to be very popular in the 80s and 90s and early 2000s. Now, they are very niche and much lower down the pecking order as taxation changes have impacted on them negatively in a number of areas.

S&S ISAs and unwrapped holdings as well as pensions are higher up the pecking order for most people now.

Linton

You are talking about Investment Bonds which are a very different topic than "Bonds".


IBs are a now largely obsolete form of tax shelter popular before S&S ISAs became available. Yes you can get 5% of the original capital cost back each year, tax free, for 20 years. But when you withdraw more than that you could pay tax. IB taxation rules are rather complex. Very roughly, any basic rate tax is covered by the IB but the total investment gains are taxed as income which may put you into the higher rate band. So really they are more a tax deferral facility rather than one for complete tax avoidance.


See here https://www.moneyadviceservice.org.uk/en/articles/investment-bonds



IBs can hold a range of investments so, like ISAs and pensions, it is the funds that are included in the IB rather than the IB itself that could be risky.

kidmugsy

I understand that Life Insurance Bonds tend to extract high fees from the owner unless the amount of capital is huge.

I'd think that almost everyone would be better off using pensions or ISAs. Or even just unwrapped investments that use up the dividend allowance, and the savings allowance, and the CGT exemption.

Maybe the trustees of family trusts would be an exception.

dunstonh

I understand that Life Insurance Bonds tend to extract high fees from the owner unless the amount of capital is huge.

Like most investment products you had the good, bad and ugly. One provider was buying business for a number of years and it was possible to get a negative reduction in yield over 10 years. i.e. they were paying you to invest with them. However, others would be in excess of 2% pa

They are largely a bygone wrapper with niche use now. Unless you are SJP where they seem to be on the increase as a way to keep IFAs away.