Advisers are increasingly turning to onshore investment bonds in response to changes in the tax treatment of investments with adviser enthusiasm set to rise further, new research from Chesnara Life (UK) Ltd shows.1
Its Onshore Bond Adviser Sentiment Survey found more than two out of five (43%) of advisers say they are increasingly using onshore investment bonds with clients in response to tax rises on investments in general.
Cuts to the Capital Gains Tax allowance and the freezing of that exemption until April 2031 specifically have had an impact on the use of onshore investment bonds for 36% of advisers, while 35% say Inheritance Tax (IHT) and estate planning is a major influence.
The survey, which investigates the use of onshore investment bonds by advisers as well as their views on key market issues, found nearly a third (32%) of advisers are using onshore bonds to help clients enhance the tax efficiency of their financial planning.
A third (31%) say onshore bonds are playing a bigger role with clients as part of intergenerational planning while 30% point to the impending inclusion of unused defined contribution (DC) pensions in estates from April next year.
Chesnara Life’s Onshore Bond Adviser Sentiment Survey, which surveyed advisers who advise on onshore investment bonds, found tax considerations are a major factor for them in understanding which of their clients are most likely to benefit from the use of onshore investment bonds.
Around a third of advisers (33%) say clients focused on IHT and estate planning are the most likely while 32% highlight higher rate taxpayers. Around two out of five (38%) say it is wealthier and HNW clients are the most likely users.
Mark Lambert, Head of Onshore Bond Distribution, Chesnara Life (UK) Ltd, said:
“The tax treatment of onshore investment bonds has remained the same while dividends and CGT allowances have been cut. We also have the change to the IHT status of unused DC pension funds rapidly approaching causing further concern to clients.
“That stability surrounding the onshore investment bond has further enhanced the appeal of the product as a key part of tax efficient financial planning making them relevant to a wider number of advisers clients now and in the future.”
Onshore bonds offer zero tax on cash dividends at a policyholder level while non-dividend income is taxed at 20%. Capital gains realised within the Bond are subject to UK life fund taxation.
This “fund level” taxation treatment of income and capital gains results in a full basic rate income tax credit being available to the investor when a chargeable event arises. In effect, this means that the policyholder is treated as having already paid basic rate income tax on these gains. Top slicing relief and 5% p.a. tax deferred rules on withdrawals remain. Lifetime transfers by way of assignment without consideration are generally not treated as taxable events.
1.Chesnara Life commissioned independent research company PureProfile to interview 200 UK financial advisers during April 2026.
