Life Insurance Bonds are a form of investment wrapper, with tax advantages. It allows a range of investment products e.g. investment funds to be placed within the wrapper, and there is a life assurance element.
The life assurance is normally equal to the value of the investments within the wrapper e.g. 100% of the portfolio value. Sometimes it is a little higher 101%, for example. If the holder was to pass away the portfolio value could be paid out straight away as it has a life insurance value. As the investment product is classed as a life insurance product, it is allowed certain tax benefits by most financial jurisdictions.
It is also a convenient way to hold a wide range of investments under one 'umbrella' and receive portfolio valuations on a regular basis (often via the internet these days). The choice and variety of bonds is wide, and they vary in charges, structure, and penalty fees. The chart below is a very simple illustration of some of the investment bonds in the market. This research was conducted in January 2011, and does not cover all the bonds in the market, or all the products each life assurance company has. It is simply an illustration of the different charging structures in the marketplace :
Click Image for larger PDF
In terms of bonds specific for Spanish residents, they fall into either 'compliant' or 'non-compliant' bonds. A compliant bond will only allow funds in the bond that are legal and acceptable for that country e.g. Spain. A 'non-compliant' bond has an open architecture, and allows most products within it's structure, however only 'compliant' funds should be placed within that wrapper. There are many wrappers in the market that are also tax compliant for Spain. So they will deal with the tax reporting to the Spanish Hacienda on your behalf, instead of paying out a gross lumpsum/income. This can be beneficial to reduce administration and ensure you are tax compliant.
Key Features (Pros and Cons)
- Reduce administration for portfolio maintenance and taxation
- Tax advantages on growth and income
- Wide range of investment choice
- Simple switching between funds (sometimes reduced costs)
- Taxation different to asset e.g. Deposit interest is taxed in UK, in bond not taxed until withdrawal.
- 5% tax free withdrawals annually
- (con) There maybe exit charges to leave the product early
- (con) There maybe intial charges and annual charges (usually advisor has options to vary)
If you would like to find out more about invesment bonds, and offshore investment, simply complete the form to the right to be put in contact with an FSA regulated investment advisor.
(c) copyright FinanceSpain.com 2011
