Life insurance bonds

No change following CGT reform

The government has announced that it ‘does not see the need for any change to the taxation of life insurance bonds as a result of CGT reform.’

Investment bonds are primarily of benefit to higher rate taxpayers, who expect their tax rate to fall in the future and who already make full use of their annual capital gains tax allowance. But they can also be beneficial for passing money on to children or for inheritance tax planning.

The effects of 18 per cent CGT on investment bonds will depend on an individual’s own circumstances, whether they want capital gains or income and whether they are investing for the long or short term.

Under the new proposals, it appears that individuals may be better off holding collective investments directly within the new capital gains tax regime, although this will depend on an individual’s circumstance. This contrasts with gains on investment bonds which, at encashment, are taxed as income at an effective rate for higher rate taxpayers of up to 40 per cent, although there are differences for onshore and offshore bonds.

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