Apollo Investment Management – The Right Choice For The Right Time

The reality of investment bonds is that they are not for everyone. But, in the right circumstances, they can be very attractive to certain investors as a way for high earners to defer income tax until they are in a lower tax bracket (usually due to retirement). They can also be useful when a taxpayer’s annual capital gains tax allowance has been exhausted.

Investment bonds require initial lump sum deposits, usually in the range of £5,000 to £10,000, and can be for a fixed term or open-ended. The performance of the specific investments that the bond holds over its life determines the payout when they are cashed in. They are also referred to as insurance bonds or single premium bonds and can be purchased from a life insurance company or via a financial adviser.

Although monies will be tied up for an extended period of time — there are surrender penalties for withdrawing funds early, usually within the first five years — it is possible to withdraw 5 percent of the original deposit annually. Tax for such withdrawals is deferred to when the bond is cashed in or fully matures. If no withdrawal is made, this 5 percent can be rolled over to the next tax year (meaning 10 per cent could be withdrawn). This provides an element of flexibility.

Unless one is highly confident that the several thousand pounds initially required would not need to be accessed for at least five years, then investment bonds are probably not the right choice.

Generally, investment bonds are either with-profits or unit-linked funds. A with-profits fund is a professionally managed investment vehicle, with monies held in a range of asset types like shares, bonds, real estate, and savings vehicles. A unit-linked fund is divided between a traditional life insurance fund for the holder and the rest invested in debt and equity securities.

Bonds are also categorised as onshore and offshore. There are rather complex tax implications between the two types of funds that a financial advisor can explain in more detail. Broadly speaking, offshore bonds often provide more diverse investment options.

There are also opportunities regarding how much control a bondholder has in directing investment strategies for their bond, including the ability to diversify its portfolio. Some bonds promise that the final cash-out won’t be less than the original investment (though these often have higher fees).

A tax strategy known as top-slicing is also possible that enables a bondholder to remain in a lower tax bracket by spreading the entire profit of the bond out over the number of years it was held. This is a somewhat complex manoeuvre that a tax consultant can help set-up.

Investment bonds are certainly worth considering — with the help of a knowledgeable financial advisor — for a select number of investors.

Disclaimer: Please consult a registered investment advisor before making any investment. The news site hosting this press release is not associated with Apollo Investment Management . It is merely publishing a press release announcement submitted by a company, without any stated or implied endorsement of the product, service, statements, or opinions. This is not a solicitation.

About Apollo Investment Management

We are a fully authorized and FCA regulated company proud to put our clients first and work with transparency and integrity. We tailor investment portfolios to suit the individual financial goals of our clients to help them make wise and safe investments with steady returns.