Providing for your children or grandchildren

Investment bonds are a form of collective investment which, unlike unit trusts and other investment types, use an insurance policy as the “wrapper” for the underlying investments.   

This has a number of tax advantages, one being that 5% of the value of the original investment can be withdrawn each year for 20 years without any immediate liability to income tax, and withdrawals can be “deferred”.  Investment bonds can be held offshore giving the advantage that returns are free of UK tax until they are brought back to the UK.  An offshore bond can also be held in trust, which could make a suitable form of investment for children or grandchildren.  For example, a trust held under an offshore investment bond would allow income to be rolled-up tax-free.  Segments of the bond could be assigned to the child/grandchild on reaching 18 and paid tax-free, provided that the child’s income did not exceed their personal Income Tax allowance (currently £11,000).  In addition, the 0% starting rate tax band is available for gains from offshore bonds, as is the £1,000 personal savings allowance (PSA), so a child with no income could potentially receive gains of £17,000 with no liability to income tax. 

At Birkett Long IFA we also work with Birkett Long LLP’s legal experts to help you with trusts and other tax planning issues.

Paul Chilver
01206 217614
paul.chilver@birkettlong.co.uk