An Investment Bond is an insurance product that allows you to invest a lump sum with the aim to provide an income, growth or a combination of income and growth over the medium to long term. The aim of the product is to potentially provide a better return on your investment than a bank or building society based investment.
Lump Sum Investment Bonds
Lump sum investment Bonds usually offer a broad range of investments funds from deposit funds (for cautious investors) through to high risk speculative investment funds. It is possible to invest into a range of the funds including Ethical Funds to help spread risk, rather than investing into one specific fund. It is also possible to switch between funds without incurring a liability to tax.
Making the Most of Investment Bonds
To make the most of your investment bond, it is usually necessary to invest for the medium to long term - typically at least five years. If you decide to surrender your bond or withdraw money in the early years you may get back less than you invested. Investments can be made into many different funds. Depending on the type of investment fund you choose, the value of the investment will go up and down on a daily basis.
It is possible to take a regular income from an investment bond. Under the current rules you are allowed to take up to 5% per year without incurring an immediate tax liability. If you surrender the investment bond in the future the provider will assess the growth on your investment, the length of time the investment has been in force, and any withdrawal you have made from the investment. If a gain has been made on your investment, a proportion of the gain will be added to your income. If you are a basic rate taxpayer there will be no further liability to income tax. However if you are a higher rate tax payer you may be liable to the difference between basic and higher rate tax.
Putting Your Investments into Trust
It is possible to put these types of products into trust. This can help if you are considering tax planning, however it is very important to obtain professional advice to ensure that an investment product is suitable for your needs.
The value of your investment could fall as well as rise and there is no guarantee you will get back the amount you invested.