Pre-budget Report and Onshore Investment Bonds

In his recent pre-budget report the Chancellor announced major changes to Capital Gains Tax (for more detail please
see previous news article entitled Pre-budget Report ), which could heavily impact on individuals and businesses. Below are details of the how these proposed changes may affect Onshore Investment Bonds.

Onshore investment Bonds have for years been an extremely effective way of investing and taking tax efficient ‘income’. The changes to Capital Gains Tax have turned this situation on its head by making the tax regime of Bonds less attractive than investing a portfolio of Unit Trusts and OEICs.

For example an Onshore Investment Bond is taxed at source within the Bond at 20%. On encashment depending on whether the investor is a basic or higher rate taxpayer a further 20% tax may be due.

In contrast under the new tax regime were the investor to instead invest in a Unit Trust portfolio he or she will pay tax on any income generated. However, on the gain he or she will be entitled to use his annual exemption and pay only 18% tax on the surplus, regardless of whether he is a basic or higher rate taxpayer.

In some cases it may still prove wise to keep Onshore Investment Bonds. However, the obvious conclusion in light of the Capital Gains Tax changes has to be that if you have an Investment Bond you should seek professional advice as to its continued suitability.

To discuss these changes and how they may affect you, please call one of our advisers on the number below:

T: 01483 205890