Mattioli Woods: INVESTMENT BONDS


It is perhaps hard to remember the total absence of choice offered by the mandatory purchase of a retirement pension before April 2011 at age 75.IIndividuals could be forgiven for approaching their 75th birthday with some trepidation because not only would there be an extra candle on the cake, but they would face a 25% drop in their maximum allowable income of 120 overnight. % to only 90% of the Government Actuarial Department (GAD) limit, plus the introduction of annual reviews.

It is fair to say that legislation has advanced considerably over the last decade, notably with the introduction of the flexible access levy in April 2015, to now allow individuals control over their retirement income and the ability to manage their heritage.

It is because of these historically rigid positions regarding retirement income that many clients would work to build a portfolio of onshore and offshore bonds in an effort to flexibly access tax-deferred funds, typically retired. Additionally, many have opted to use multiple bonds rather than a single provider to diversify their investments, as was the case prior to open-architecture bonds, with each company offering only a limited number of funds, primarily using their profit-sharing options.

As a result, many clients are now sitting on accrued gains in a bond portfolio where the available 5% may have been exhausted or is about to be exhausted. As a result, they wonder how to handle the potential double taxation looming in the distance, both income tax on the accrued gain and inheritance tax (IHT) on the remaining obligation.

Life insurance bonds, while offering potential benefits when considering care home asset calculations, bring with them the inevitable tax assessment at death of insured lives. Additionally, they generally do not allow for future in-trust allocations to enable IHT planning and the often limited number of segments poses its own dilemma when considering a staged encashment approach.

Also, unlike a general investment account (GIA), there is no automatic rebasing of earnings upon death. Therefore, funds from these bonds could potentially be subject to income tax on any accrued gain, but also to IHT, which means that a client’s estate could potentially suffer up to around 60% tax on these bonds.

Following Marina Silver v HMRC (TC07013), changes have been made. Not only were the bond calculations changed in the Spring 2020 budget for gains arising from 11 March 2020, but HMRC later confirmed that this retrospective change would apply to people who had made gains from 2018/ 19. This means that all tax calculations made from 2018 onwards could now be incorrect and should therefore be reviewed due to the potential for tax breaks.

Following the changes brought about by the case and the resulting legislation, we believe that the encashment and rebasing of bonds – both onshore and offshore – should never, in most scenarios, be more penalizing than rebasing an ISA or GIA account, as we will strive to cap the tax payable at a maximum of 20% (which, for onshore bonds, means no exit tax applies, since it is already deemed to have incurred it internally within the obligation).

This provides a good opportunity for investors to further develop their tax and estate planning without feeling like they are a sitting duck, waiting for HMRC to aim for their ‘golden nest eggs’.

At Mattioli Woods, we are proud to work with accountants and accounting firms to achieve their clients’ goals in all areas of financial planning, and we believe these changes have truly opened up opportunities for the rebasing of existing wealth. in order to make it more accessible while providing a future-proof capability against IHT in the future.

Please contact your Mattioli Woods consultant if you would like to discuss these changes in more detail, we will be happy to assist you.

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