How An Investment Bond Can Reduce Your Capital Gains Tax Liability
In this blog the focus is on how you can reduce or eliminate your potential capital gains tax (CGT liability) by using an investment bond, as well as highlighting other key benefits of using a bond towards the end. We will produce a separate blog on action to take with your pension to reduce the future inheritance tax liability.
This Is Relevant To You If…
If you have investments in funds or shares outside of your ISA and/or SIPP, these are liable to CGT, and from the 30th October 2024 they are liable to a higher rate of CGT than previously. Moreover, it appears highly likely that these rates will go higher still in years to come.
If this describes you, an investment bond should be considered immediately to eliminate any capital gains tax liability this year and for years to come.
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How An Investment Bond Will Help You
Investment bonds are wrappers similar to the way ISAs and SIPPs are also wrappers within which you hold your investment funds, but investment bonds have a different tax treatment from other wrappers, and provide invaluable tax planning opportunities.
For current purposes, the considerable advantage of the investment bond is when your funds are bought and sold within the bond, no CGT arises, however big your gains are.
For some clients there will also be financial planning opportunities around inheritance tax and income, but these are not the focus for today’s note. Nonetheless if you are interested in these benefits then please do contact your usual adviser, and we will be happy to discuss these in more detail.
Why Consider An Investment Bond Now?
- No Capital Gains Tax: There is no gains tax on switches between funds held within the bond.
- Tax Efficient Withdrawals: 5% of the amount invested can be taken each year for 20 years without any immediate liability to tax, a valuable source of tax-efficient withdrawals.
- Less Tax For Higher Rate Taxpayers (1): You can benefit from so-called top-slicing relief, where otherwise you might have to pay higher rate tax on certain withdrawals.
- Less Tax For Higher Rate Taxpayers (2): Flexibility to assign part or all of the policy to a basic rate taxpayer creating the potential to reduce future income tax for yourself.
- Investment Options: We will manage the investments within the bond on a discretionary basis, where we can choose from a wide range of funds that align to your risk appetite. Powered by our proven philosophy and in-house research.
- Inheritance Tax Efficient: Placing the policy into a trust may provide an immediate or future inheritance tax saving.
If you are an existing client and believe an onshore bond might be suitable for you, or you would like to discuss this with us in more detail, please get in touch with your usual adviser and they will be happy to help.
Alternatively, if you are not yet a client, book a free initial consultation with one of our Chartered Financial Planners via the button below.
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