Explaining Onshore Investment Bond Benefits Can Boost Adviser Businesses

by | Dec 8, 2023

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Growing demand for onshore bonds is a business opportunity for advisers, but research from HSBC Life (UK) Limited (“HSBC Life (UK)”) shows too many clients are not making full use of the tax benefits offered by onshore investment bonds despite rising concerns about tax issues.

Research for HSBC Life (UK)’s report, The Three I’s of Investable Capital, in association with consultancy Technical Connection, found two out of five people who have advisers, or have seen one in the past year, hold onshore investment bonds.

But nearly two out of three (64%) say they do not know about the key tax benefits from holding an onshore investment bond. 

 
 

Only 15% of clients surveyed say they know about, and use, the 5% per annum tax deferred withdrawals. Around 23% who hold an onshore investment bond say they don’t use 5% withdrawals. Around 9% are aware of, and use, top slicing but 20% are aware of, but don’t use, top slicing. Nearly one in five (18%) know about not having to make tax declarations and 25% say they make tax declarations on the bond.

HSBC Life (UK) believes that the low level of awareness and use of key tax benefits offered by inshore bonds, is a major opportunity for advisers to educate clients about bond benefits as taxation is a growing concern. Its study found more than half (51%) of clients are worried about tax, with income tax the biggest concern ahead of Inheritance Tax and Capital Gains Tax.

Mark Lambert, Head of Onshore Bond Distribution, HSBC Life (UK), said: “Growing demand for onshore investment bonds is being driven by reductions in Capital Gains Tax exemptions and dividend allowances as well as general increases in the amount of tax paid which has brought the tax benefits of onshore investment bonds sharply into relief.”

 

“However, our report shows relatively low levels of knowledge and use of the key tax benefits of bonds among investors who hold them which represents a real opportunity for advisers to engage with their clients and provide important support on issues which are top of the mind for these individuals.”

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 investment 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.

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