· Nearly three out of four advisers see increased demand for ESG investments in bonds as CGT and dividend allowance restrictions boost the market
The investment focus on onshore bonds, especially those with open architecture, is increasingly switching to ESG and sustainability as the market continues to expand, research from HSBC Life (UK) Limited (“HSBC Life (UK)”) shows.
Nearly three in four advisers (72%) have seen an increase in demand for ESG and sustainable investments to be held in onshore bond structures with 16% reporting a significant increase in demand, the research for HSBC Life (UK)’s report The Three I’s of Investable Capital, in association with consultancy Technical Connection, shows.
The study found that on average advisers estimate nearly half (45%) of their client base holds onshore bonds with advisers writing an average of 45 onshore bonds cases a year.
Overall demand across the sector is surging with the relatively low annual dividend allowance and cuts to the level of the Capital Gains Tax (CGT) annual exemption from £12,300 to £6,000 driving increased interest in onshore bonds as a tax-efficient investment. And as the overall appeal of onshore bonds increases, clients are considering ESG funds as the underlying investment vehicle.
Around half (49%) of advisers say dividend allowances are having a positive impact on the sector while 47% highlight the positive impact from the reduced CGT annual exemption. Around 48% of advisers say onshore bonds are very attractive to clients looking for tax efficiency and regular income.
Growth in the market combined with the growing interest in funds related to ESG and sustainability is driving interest in innovation across the sector as well as demand for technical support from providers, the report says.
Mark Lambert, Head of Onshore Bond Distribution, HSBC Life (UK), said: “As a provider of an open architecture onshore bond we believe we are well placed to rapidly enhance our range of available investments in response to changing investor demand with the growing interest in ESG and sustainability just one aspect of the innovation across the sector.
“Recent changes in tax treatment of investments, including the relatively low annual dividend allowances and cuts to CGT annual exemptions which will happen again in the next tax year, is turning the spotlight on how onshore bonds can deliver tax efficient investment growth and regular income in a changing taxation climate.”
HSBC Life (UK’s) report analyses the full range of investable capital assets including equities, collective investments such as unit trusts and OEICs as well as ISAs, onshore and offshore bonds, defined contribution, and defined benefit pensions, VCTs, EIS, SEIS, structured investments, and crypto investments.
It highlights how capital investments can be structured to achieve intergenerational and estate planning, as well as the role of initial and ongoing advice in ensuring an optimal outcome from the investment of capital and the potential future tax treatment of capital investments.
Onshore bonds offer zero tax on cash dividends at a policyholder level while non-dividend income is taxed at 20%. Gains within the Bond are subject to UK life fund taxation which means that the policyholder is treated as having paid basic rate tax on these gains. Top slicing relief and 5%p.a. tax deferred rules on withdrawals remain. Lifetime transfers by way of assignment where there is no exchange of money or money’s worth are not taxable events and basic rate tax credit in determining policyholder tax on realised chargeable gains continue.
The HSBC Onshore Investment Bond, a tax effective medium to long term lump sum investment wrapper, can be accessed with a minimum investment of £15,000 providing the potential for capital growth while still allowing clients to make withdrawals from their investment. It offers clients access to around 3,800 funds via open architecture.
HSBC Life (UK) does not replicate funds offered by external fund managers. It enables investment in the funds directly, ensuring that consistency of approach across the investment solutions that advisers recommend to their clients.
Please click here to download the report: https://www.life.hsbc.co.uk/three-i-report/
