Investors increasingly need to generate income from their portfolios, research from HSBC Life (UK) for its report, The Three I’s of Investable Capital 2025, shows.
The study found 72% of advisers’ clients say they need an income from their investments up from 65% previously. More than half (51%) say they draw on capital while 44% rely on distributions or interest from their investments, called ‘natural’ income.
Research for the report found nearly two out of five (39%) clients are using investments rather than pensions to generate an income currently.
HSBC Life (UK) believes the need for income from investments could continue to be a major concern as people work full or part-time beyond traditional retirement ages and need to supplement their earnings. Its research shows around half (48%) expect to continue to work and generate income compared with 44% previously. Just 36% questioned in the research do not expect to work past this stage of life.
The Three I’s of Investable Capital 2025 report focuses on the role of Onshore Investment Bonds for income planning and highlights the need for advisers to have a truly holistic understanding of their clients’ portfolios so that they can support them in the most tax efficient way.
Although Onshore Investment Bonds are deemed a non-income producing asset, they could support clients’ need for income because they offer a potentially tax-efficient way of providing a flow of payments.
A commonly used option is for clients to utilise the 5% tax deferred allowance which allows them to withdraw up to 5% of their total investment each policy year without incurring an immediate tax charge.
Because Bonds can be divided into multiple policy segments, an option for tax efficient income from partial surrenders is to cash in policies, which, when combined with top slicing relief, only triggers a personal tax charge to the extent that this gain, when added to other taxable income, exceeds the higher rate threshold.
The Three I’s report on tax efficient capital investment, produced in partnership with Technical Connection, incorporates a strong focus on how, in the right circumstances, Onshore Investment Bonds deliver tax efficient income for investors.
Mark Lambert, Head of Onshore Bond Distribution, HSBC Life (UK) Limited, said:
“Growing numbers of clients need income from their investible assets which increases the challenge for advisers in delivering tax-efficient advice. Onshore Investment Bonds can help with that aim and generally the longer the bond has been in force, the greater the flexibility and opportunity for tax efficiency.”
HSBC Life (UK)’s 2025 report provides an in-depth review of the role that investable capital playsin the fulfilment of financial plans through all the key stages of the financial journey – wealth creation, decumulation and drawdown of wealth plus wealth transfer.
Onshore Investment Bonds offer zero tax on cash dividends at a policyholder level while non-dividend income is taxed at 20%. Capital gains realised within the Onshore Investment Bond are subject to UK life fund taxation. This “fund level” taxation treatment of income and capital gains results in a full basic rate credit being available to the investor when a chargeable event arises. This, in effect, 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 without consideration are not taxable events.
The HSBC Onshore Investment Bond, a tax effective medium to long term lump sum investment wrapper, can be accessed with a minimum investment of £25,000 providing the potential for capital growth while still allowing policyholders to make withdrawals from their investment. It also offers them access to around 3,800 funds via open architecture.
HSBC Life (UK) Limited 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/
