Advisers urged to reconsider investment bonds

Sanlam UK has urged financial advisers to give investment bonds renewed attention.

Speaking at a recent seminar on behalf of Sanlam, Technical Connection managing director, Tony Wickenden, suggested that the bonds were “out of favour”, but “deserve reconsideration” from advisers in terms of planning tax-efficient income streams for clients.

Managed by life insurers, UK investment bonds negate the need for many clients to complete self-assessment tax returns, and life funds will not be paying the new 25% corporate tax rate.

While tax benefits are also available through venture capital trusts (VCTs) and enterprise investment schemes (EIS), Wickenden said these have often carried more risk, and they are not always as simple to administer.

Commenting, Sanlam UK head of UK intermediary distribution, Lawrence Cook, said: “Once ISAs and pensions have been deployed, a UK investment bond can be a tax-efficient accumulation and ‘decumulation’ wrapper, enabling clients’ investments to grow, with the potential to defer tax.

“The wrappers offer many benefits including tax-free dividends, the opportunity to withdraw up to 5% tax free per year – cumulatively, and the ability to top slice. However, the longer the bond is in place, the better the benefits will be, so it is important for advisers to speak to clients about arrangements as early as possible before retirement.”

A Sanlam survey conducted by Technical Connection, which questioned 500 advised clients with over £50,000 in investible assets, revealed that more than half of respondents (56%) said they did not understand the tax deferment and tax efficiency that insurance-based investment bonds can offer. Just under half of those (26%) said they would be keen to find out more.

Furthermore, 63% of respondents said they would value more regular and better education from their adviser. Another 40% of survey respondents realised capital gains of more than £12,300 – the Capital Gains Tax allowance – per year, and so could potentially benefit from the bonds.

Cook added: “There is an interested, currently uninformed cohort of potential clients, who are open to being more informed about investment bonds; it’s time for advisers to step forward and help them navigate the new tax-scape.”

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