What is an investment bond?

An investment bond is a single premium life assurance policy. However, its main objective is to invest a lump sum in order to benefit from the features of the product and the tax treatment that applies to them.

Who can take out an investment bond?

  • Individuals over the age of 18 (solely or jointly with another investor)
  • Maximum age limits may apply. It may not be possible to take out a new bond If the youngest life assured is over 85
  • Trustees
  • Limited companies
  • Charities

Different tax treatment will apply to nonresident investors, limited companies and charities.

How can I invest my fund?

Investment options are often limited by the bond provider. Sometimes the options are restricted to a selection of the provider’s own ‘insurance’ funds. Some bonds can offer a wide range of investment options. These bonds are known as ‘open-architecture’ bonds.

In addition, some offshore bonds can hold small foreign currency deposits, but you cannot ’invest’ in currency for speculative purposes.

  • Some providers offer ‘with profits’ bonds.
  • Care must be taken when investing within an investment bond as a ‘personalised’ bond would be subject to tax during the life of the bond.

Tax treatment for personal investors

Investment bonds are subject to UK tax at the same rates as Income Tax. Onshore bonds are deemed to have paid UK tax at the basic-rate. Any higher rate tax liability will be charged via your Self-Assessment tax return. For offshore bonds, the whole gain will be potentially subject to Income Tax.

A potential tax liability will occur when there is a chargeable event. Most commonly a chargeable event occurs on the death of the last life assured, when the bond is encashed or partially encashed, or when withdrawals of more than the allowable accumulated 5%’s are taken. When a chargeable event occurs, the chargeable gain is calculated. The chargeable gain may attract top-slicing relief to help limit the amount of tax paid on encashment / partial encashment.

Read more in our Investment Bond fact sheet

An investment bond is a long-term investment. The fund value may fluctuate and can go down, which could have an impact on the fund available.