Onshore investment bonds’ tax efficiency makes them a credible GIA alternative

Onshore Investment Bonds are continuing to emerge as an effective alternative to General Investment Accounts (GIAs) as the need for tax efficient investments grows, a report from HSBC Life (UK) produced in partnership with Technical Connection shows.

GIAs are popular with investors due to their flexibility, which enables clients to hold and administer a wide range of assets in one place, and with no restrictions on how much can be invested. However, holdings in a GIA are subject to income tax on any income generated as well as, Dividend Tax and Capital Gains Tax (CGT).

Research for HSBC Life (UK)’s report, The Three I’s of Investable Capital 2025, found that nearly six out of ten (58%) of advisers said they want information and support from providers on understanding the recent changes to CGT.

The changes cut the annual CGT exempt allowance to £3,000, having been as high as £12,300 in 2023, and increased the CGT rate of tax to 18% for basic rate taxpayers and 24% for higher rate taxpayers. In addition, the dividend allowance was reduced to £500 having been £2,000 in 2022/23.

Research for the report found nearly two out of five (38%) advisers want better articulation of the benefits of Onshore Investment Bonds, including the tax efficient benefits offered.

The report outlines how Onshore Investment Bonds provide simple tax administration. Whilst any gains in the Bond are subject to internal Life Fund taxation, there is no need for a tax return by the client until a chargeable event leading to a taxable gain happens. GIA investors by contrast must monitor and report any capital gains or losses and pay any tax due.

Funds can be switched within an Onshore Investment Bond without triggering tax consequences. With a GIA no such feature exists, and any fund switches may be subject to tax. 

Onshore Investment Bond investors can benefit from the facility to withdraw 5% p.a. of premiums paid with no immediate tax considerations. In addition, any further withdrawals can benefit from top-slicing relief, effectively accessing growth tax-free or at a reduced rate of income tax.

Another beneficial feature of Onshore Investment Bonds is the ability to assign some or all of the Bond. This can be a highly tax efficient strategy for an assignee who is a taxpayer on a lower rate, or a non-taxpayer, as they also inherit the years of ownership and any accrued 5% withdrawal allowances.

The report highlights how the size of the investment in an Onshore Investment Bond (and there is no limit) potentially dictates how meaningful the tax deferment and management benefits are making them an alternative to GIAs.

To help advisers to assess and compare the tax treatment of GIAs and Investment Bonds, HSBC Life (UK) has developed a wrapper comparison tool which can be downloaded from its website at: Investment Wrapper Calculator | Advisers | HSBC Life

Mark Lambert, Head of Onshore Bond Distribution, HSBC Life (UK) Limited, said:

“Onshore Investment Bonds are an increasingly attractive and flexible proposition for advisers and their clients wishing to hold a range of assets in a single wrapper. They deserve serious consideration for their tax deferment and tax management qualities once ISA and pension opportunities have been maximized and are a convincing alternative to GIAs.”

HSBC Life (UK)’s 2025 report provides an in-depth review of the role that investable capital plays in 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 policyholder 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/