Onshore Bond

Retirement is no longer just about pensions. Structuring a tax-efficient income stream from a range of tax wrappers is becoming increasingly important to help people meet their financial goals throughout life.

HMRC reduced the tax-efficient dividend allowance from £2,000 to £1,000 a year on 6 April 2023, impacting the effectiveness of assets held in a general investment account (GIA).

The open architecture bond allows you to replicate your centralised investment proposition across all wrappers for your clients. The results are greater consistency and a straightforward way to manage different risk profiles.

What are the aims of the Onshore Bond?

• Grow your clients’ investments over the medium to long term (at least five years and ideally longer) through a life assurance policy that offers the potential to defer higher and additional rate tax on income and growth.
  
  
• Provide a tax-efficient income stream should your clients require it.
  
  
• Provide access to a wide range of investments, which comprise the underlying assets.

What are the benefits of using a bond?

• Bonds aren’t considered income-producing assets, removing the need for individuals or trustees to complete self-assessment tax returns.
  
  
• Fund switches can take place without the need for tax reporting and without giving rise to capital gains tax (CGT).
  
  
• 5% of the original capital can be withdrawn from the bond without an immediate tax liability for 20 years cumulatively.
  
  
• Top-slicing relief can be used when chargeable gains cross the threshold into higher rate tax.
  
  
• Bonds can be placed in trust and taken out of a trust without rise to an income tax charge or CGT.

Who might consider an Onshore Bond?

The Onshore Bond is aimed at private clients and trustees in a wide range of circumstances:

• Looking to use their full CGT tax allowance every tax year.
  
  
• Require regular tax-efficient withdrawals.
  
  
• Regard simple tax administration as an advantage.
  
  
• Higher or additional rate taxpayers:
  • Who expect to become basic rate taxpayers when the bond is surrendered (such as on retirement)
    or
  • Who can assign the bond to a basic rate taxpayer (such as a spouse) before surrender.

• Looking to mitigate the effects of inheritance tax by taking advantage of specialised trust arrangements.