Investment Bonds Uk

Investment Bonds UK are offered by insurance companies within the United Kingdom. These companies will aid the future investor in investing in a variety of different funds which are managed by a professional fund manager. Usually, the Investment Bonds involve a collective investment, or diversification of individual holdings, which offer less of a risk to the investor. These funds are designed to promote long term capital growth, as well as used to generate income.

Typically, the minimum investment is ?5,000 or ?10,000 (pounds) which is $8,271.50 to $16,543.00 in United States currency. When the investor purchases a bond, he will be given a certain number of units in the funds of his choice. This fund will consist of a portfolio of investments (such as bonds or shares and the price of the units) which is basically the worth of his capital. The value of the capital will rise and fall in value to correspond with the value of the investments. Actually, Investment Bonds are single premium life insurance policies which denote a percentage of provided life insurance (approximately 1% of the investment's value paid after the investor's death).

Although the bonds can change in value, most have good records for providing a steady income and, thus, have become rather popular. Another reason for the popularity of Investment Bonds is that investors do not pay capital gains tax on any gains nor do they have to pay the basic rate income tax on any income, either. Since these bonds are life insurance policies, the insurance companies must pay the taxes on the incomes and the capital growth which is generated by the investments held by the bond.

However, the investor will become liable to an income tax if he cashes in his bonds or withdraws a partial amount of the funds (over 5 percent per annum of the original investment). If the investor only withdraws amounts up to 5 percent once a year for 20 years, he will not face an immediate tax liability. If he skips one year's withdrawal, the next year he may withdraw up to 10 percent of the original investment without incurring a tax charge. The withdrawal of this percentage may not push the investor into a higher tax bracket; therefore the investor will not have to pay any tax on the bond's proceeds. This feature adds an extra incentive for investing in Investment Bonds UK and becomes a valuable tool for tax planning strategies.