Company Investments

Investment Bonds For Retained Company Monies

Investment Bonds are sometimes referred to as single premium, life assurance policies.

Onshore investment bonds, i.e. those based in the UK, are pooled investments offered by UK life insurance companies. Alternatively, offshore investment bonds are offered by subsidiaries of UK insurance companies based in places such as the Isle of Man, Dublin and Luxembourg and have inherent taxation advantages over investing into UK bonds and via unit and investment trusts.

Investments into UK onshore bonds incur life company fund taxation on income and capital gains within the fund. However, for a company there is no offset for tax already incurred on the gain, which is fully taxable in the company’s hands.  Therefore there is an element of double taxation.

Offshore bonds offer investors predominately ‘gross’ roll up with no underlying taxation except for non reclaimable withholding tax which may apply to investments in international securities. The gains are still subject to Corporation Tax. Compared with the ‘onshore’ counterpart, the overall taxation is lower, thus there is a compelling argument for company investors to utilise offshore bonds. Given that by their nature they tend to be longer term investments, the benefit of ‘gross’ roll up is accentuated the longer the investment is held.

Onshore or offshore, tax is deferred until the bond is partially or totally encashed.  Tax law also allows cumulative withdrawals of 5% per annum of the original investment with these being treated as tax deferred withdrawals of capital, thus enhancing the flexibility of this product. e.g. after 5 years 25% of the original premium may be withdrawn without crystallising an immediate liability.

The asset is in fact non-income producing, with all gains being sheltered within the bond.  Unlike unit and investments trusts, it is possible to transfer within the umbrella of a bond from one sector to another without incurring charges or crystallising a Corporation Tax liability.

Charges can be high for investing within bonds although are generally comparable with direct investment into unit and investment trusts.

Clearly, the investment risk attaching to this type of investment can vary and may be tailored to a level with which an investor is comfortable. Indeed, the underlying funds need not be entirely equity based, but instead a balance between the various different asset classes, including property, fixed interest and equities may be achieved and geared to an investor’s view and the economic conditions prevalent at any given time.

Chargeable gains within the bond, which would by crystallised on encashment, or on withdrawals of more than 5% per annum of the original premium, could be used to offset any potential losses that develop as a result of the continuation of a company.

In conclusion, in our view offshore bonds are the most suitable products in which to achieve a higher exposure to investment risk than cash within a Limited Company.