Single Premium Investment Bonds

An Investment Bond is an investment plan designed to accept a single premium investments that allow you to invest within a wide spread of investment funds. Your investment can be within funds investing within fixed interest investments, property, shares or cash and can cater for many investment objectives. In addition to the initial investment, it is possible to add further lump sum investments from time to time.

Most life companies provide a wide range of fund links allowing a choice of equities, property, fixed interest and cash in many geographical areas. Many now also allow the investor to access a wide range of funds from different managers under one Bond that can be very useful when building a tailored investment for individual needs and aspirations. Additionally, mixed or managed funds are available where the life company is responsible for the allocation within its range of funds. Some life offices also offer with-profit Single Premium Bonds. Switches amongst funds are permitted, normally at nil or low cost without a potential tax liability.

Under current legislation, partial withdrawals are allowed without any immediate liability to tax, i.e. tax is deferred, if they do not exceed 5% p.a. of the amount invested. If this annual limit is not used, or not fully used, any unused amount is carried forward indefinitely. Thus, if there are no withdrawals in the first three years, up to 20% of the amount invested can be taken in the fourth year without immediate tax liability.

If an amount in excess of the 5% limit is taken, it will be a 'chargeable event' and the excess will be treated as a chargeable gain. The tax charge will be to income tax, not capital gains tax, and may be charged at up to 20%, being the difference between higher rate tax and the deemed taxation on the investment fund of 20% (the same rate as lower rate income tax). If the policyholder is a higher rate tax payer, the entire gain will be subject to a minimum tax charge of the difference between the policyholder's rate of tax and lower rate. Currently the maximum charge would be 20% (40% higher rate less 20% lower rate).

If the policyholder is a lower rate taxpayer and adding the chargeable gain does not take the policyholder into the higher rate tax band, there will be no additional personal tax liability on the withdrawal.