The value of investments and the income they produce can fall as well as rise, you may get back less than you invested.
Tax treatment varies according to individual circumstances and is subject to change.
What are Onshore Bonds and when are they useful?
Onshore Bonds allow investors access a range of investment funds which in turn can invest into a diverse range of asset classes. They are in fact very like Offshore bonds but have a different tax treatment.
What are the differences between Onshore and Offshore bonds?
Primarily, the tax treatment, where onshore bonds are taxed at source (at a basic marginal tax rate) and offshore bonds are not.
Onshore bonds are useful in the following situations:
The bond holder can make future fund switches without tax implications.
The bond holder already has sufficient assets subject to the CGT regime.
If the bondholder is a basic rate taxpayer on bond surrender, there would then be no further tax to pay on encashment, unless the gain, when added to your income, makes you a high rate taxpayer.
Fund switches can be made with fewer tax reporting considerations than is the case with an OEIC or Unit Trust.
The 5% tax deferred ‘income’ facility under the Bond provides a regular, simple, means of meeting your requirements.
The 5% tax deferred ‘income’ facility may be useful for a higher rate taxpayer who expects to become a basic rate tax payer when the Bond is fully encashed.
Disadvantages of Onshore Bonds
Onshore bonds can be less tax efficient than collective investments;
Non-tax payers will effectively pay tax that cannot be reclaimed;
Gains are assessed as income and thus may affect eligibility for means tested benefits and/or personal allowances