Advised clients are failing to make full use of the tax benefits offered by onshore investment bonds, despite rising concerns about tax issues, says HSBC Life UK.
Research carried out by HSBC Life found two out of five people who have advisers, or have seen one in the past year, hold onshore investment bonds. However, nearly two thirds (64%) do not know about the key tax benefits from holding an onshore investment bond.
Just one in six (15%) clients say they know about and use the 5% per annum tax deferred withdrawals, compared to 23% who do not use the 5% withdrawals.
A further 9% said they are aware of top slicing and 20% choose not to use top slicing despite being aware of it. Just under a fifth (20%) said they know about not having to make tax declarations, while 25% say they make tax declarations on the bond.
HSBC Life urged advisers to educate clients more about the benefits of bonds, as 51% of clients expressed concerns about tax.
The team point out that:
• Onshore investment bonds offer zero tax on cash dividends at a policyholder level while non-dividend income is taxed at 20%.
• Gains within the Bond are subject to UK life fund taxation which means that the policyholder is treated as having paid basic rate tax on these gains.
• Top slicing relief and 5% p.a. tax deferred rules on withdrawals remain available.
•Lifetime transfers by way of assignment where there is no exchange of money or money’s worth are not taxable events and basic rate tax credit in determining policyholder tax on realised chargeable gains continue.
Mark Lambert, head of onshore bond distribution at HSBC Life, said: “Growing demand for onshore investment bonds is being driven by reductions in Capital Gains Tax exemptions and dividend allowances as well as general increases in the amount of tax paid which has brought the tax benefits of onshore investment bonds sharply into relief.
“However, our report shows relatively low levels of knowledge and use of the key tax benefits of bonds among investors who hold them which represents a real opportunity for advisers to engage with their clients and provide important support on issues which are top of the mind for these individuals.”
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