Two-thirds of people unaware of how bonds can help with inheritance and tax planning

Insights from investment, protection and retirement specialist LV=, reveal a significant number of people (47%) plan to pass down their wealth to future generations, with more than a third (38%) intending to transfer assets directly to their children. However, many remain unaware of how to do so in a tax-efficient way.

The growing appetite for intergenerational wealth transfer coincides with significant changes to Inheritance Tax (IHT) introduced in the 2024 Autumn Budget. Examples include making defined contribution pensions liable for IHT from April 2027 and introducing new caps on business and agricultural relief. These changes have prompted many individuals to reevaluate their estate. 

According to LV’s findings, over a third (36%) of people are worried about their financial future. With tax thresholds currently frozen, and the looming possibility of future increases, more people are seeking professional financial advice to understand the impact of IHT and to ensure their wealth is passed down to further generations effectively. 

One solution rising in popularity is the use of onshore bonds. These investment vehicles offer a simple and effective way to grow savings in a tax efficient wrapper. When integrated into a broader estate planning strategy, bonds can help mitigate IHT and support a smoother, more structured intergenerational wealth transfer. 

Onshore bonds can be assigned to family members without triggering a chargeable gain. The new owner will be treated as if they have owned the bond from inception, enabling them to benefit from full top-slicing relief and any unused 5% tax-deferred allowances on future encashments. 

When used as a trustee investment, the trustees benefit from a non-income producing asset and the ability to utilise the 5% tax-deferred withdrawal allowance when funds are needed. This structure reduces administration and tax exposure for the trust, with the ability to assign all or part of the bond (assuming it is set up as a number of clustered policies) to a beneficiary at a later date, which usually results in tax savings.

Despite these notable advantages, more than two thirds (67%) of people reportedly know almost nothing about how bonds can be used for inheritance planning and tax mitigation. This knowledge gap highlights the vital role financial advisers play in educating clients on available strategies to grow their funds in a tax efficient way.

Sarah Hills, Wealth Proposition Director at LV=, said: 

“With more people looking to pass on their wealth, it’s essential that they are aware of the financial planning tools at their disposal. 

“Onshore bonds offer a valuable option, combining tax efficiency with investment growth potential and flexibility, which can support clients as they prepare for later life and to leave a lasting financial legacy.

“Bonds remain a valuable option and it is clear that greater awareness and education are required to ensure clients fully understand their options and can make informed decisions.” 

As interest in integrated financial planning continues to rise, advisers are uniquely positioned to guide clients through the complexities of estate planning and help them achieve their long-term financial objectives.

Find out more about onshore bonds. Capital at risk.