Investment bonds: a strategic tool for building and preserving wealth

Investment bonds can be a powerful way of structuring your wealth and when used effectively, they can help you time income, manage tax liabilities and plan more flexibly for succession.  

For many of our clients, they sit alongside pensions, ISAs and direct investments as part of a broader strategy to grow and preserve wealth. 

However, there is still a considerable number of investors who haven’t considered them as part of their wealth management plan.  

Managing tax with flexibility 

An investment bond allows you to defer Income Tax until a “chargeable event” occurs, giving you control over when tax becomes payable. 

This can be particularly valuable if you expect to fall into a lower tax band later in life or want to manage your total income in a given year depending on your other income streams.  

You also benefit from a five per cent withdrawal allowance, which allows you to take up to five per cent of the original investment each year for up to 20 years without triggering an immediate tax charge.  

This feature provides a predictable, tax-efficient stream of income while leaving the bond invested. 

The offshore advantage 

Offshore bonds, typically established in well-regulated jurisdictions, such as the Isle of Man, Guernsey or Dublin, allow investments to grow virtually free of local tax.  

This gross roll-up effect compounds returns over time, enhancing long-term outcomes compared with taxed investments. 

They also open broader investment opportunities, often with access to multi-currency funds and global managers.  

For those with international assets, family overseas or cross-border considerations, offshore bonds can be especially attractive.  

From a planning perspective, offshore bonds are particularly effective where: 

• Withdrawals can be deferred until retirement or another period of lower income, 

• Assignments can be made to family members in lower tax brackets, or 

• The bond is placed in trust to manage inheritance tax exposure. 

This has become more beneficial with the changes to the tax residency rules in the UK in recent years.  

Points to weigh carefully 

Whilst the benefits seem evident, investment bonds are not without complexity.  

Investors should be aware that gains are taxed at Income Tax rates rather than Capital Gains Tax, which means timing withdrawals is crucial to avoid a larger tax bill.  

Offshore bonds may also carry higher charges than direct investments, which could devalue the investment made. 

Why consider them now? 

If you have already made full use of your pension and ISA allowances, investment bonds offer another way to build wealth tax efficiently while retaining flexibility.  

How can we help

To find out more about investment bonds and how they could form part of your wealth plan, please get in touch our expert, Andrew Tricker (andrewtricker@lfwm.co.uk) for a confidential discussion. 

*This blog post has been written by Lubbock Fine Wealth Management (LFWM). The opinions and views expressed are those of LFWM and do not necessarily reflect 
those of Lubbock Fine. All information provided in this blog is for informational purposes only and should not be considered professional advice. LFWM is not 
responsible for any actions taken based on the content of this blog.