Two thirds (65%) of advisers are more likely to look at onshore bonds following changes in the Autumn Budget to capital gains tax rates and inheritance tax, says HSBC Life UK.
According to its new report, ‘The Three I’s of Investable Capital 2025’ produced in partnership with Technical Connection, advisers should focus on the planning benefits of investment bonds, specifically onshore bonds, at a time when client awareness of their importance in tax effective accumulation, decumulation and wealth transfer is on the rise.
The research found the number of advised clients who fully understand how onshore bonds work has risen to 24% from 19% two years ago.
Yet, advisers estimate that nearly a quarter (23%) of their clients who could benefit from using onshore bonds still do not currently have them.
One in three (31%) advisers say that increases to the rates of CGT in the Autumn Budget will continue to have a significant impact on tax wrapper choices but they need help with explaining the benefits of bonds to clients to promote client engagement. Around 38% agree that better articulation of the benefits of bonds is needed, while 37% want more provider support on the wide application of bonds and 31% want greater adviser education.
However, more than four fifths (82%) of advisers say they are confident explaining the taxation treatment of onshore bonds and HSBC Life UK believes that applying this knowledge could help to deliver ideal financial planning outcomes.
Mark Lambert, head of onshore bond distribution at HSBC Life (UK), said: “Onshore bonds are increasingly forming an intrinsic part of lump sum investment based financial planning for an increasing number of investors. To help advisers fulfil their clients’ needs in relation to this tax effective wrapper, providers should work to supply the technical support and education that is required for the advice marketplace.
“As evidenced in the findings of the report, we believe there is a huge opportunity for advisers to reinforce the role bonds can play in tax effective accumulation, decumulation and intergenerational wealth transfer.”
Tony Wickenden, founder of Technical Connection, commented: “While the taxation fundamentals of investment bonds have not changed, the relatively recent reduction of the dividend allowance and the CGT exemption have combined to lower the investment threshold above which investment bonds deserve serious consideration for their tax deferment and tax management qualities once the “ISA and pensions” opportunities have been maximised.
“The increase in the rates of tax payable on dividends above the allowance and the increase to the rates of CGT just add to this opportunity to reconsider bonds, especially where the underlying portfolio has a strong income component, and the investor is and is likely to remain a UK taxpayer.”
Wickenden said it was also important to remember that inside an onshore investment bond, dividends generated are tax free without limit and the investor will have a full basic rate tax credit, together with the tax deferred withdrawal regime and top-slicing, when they encash.
“And of course, combined with an appropriate trust, flexible wealth transfer planning becomes eminently possible,” he added.
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