Structured Income Bond

What is it? 

An Income Bond is a single premium investment that provides a guaranteed income either in a monthly, quarterly or annual basis for a specified term at which time the capital investment is returned.  Capital return is often conditional and based on market performance usually related to an index.

Who is it for?

They are not designed for those individuals who may need access to their capital during the contract term.

How does it work?

The bond is usually related to an index such as the FTSE 100, Eurostoxx 50 or NASDAQ.  If at the end of the bond term, the index falls by more than a certain percentage below the index at the start date then full capital return is not guaranteed and may be reduced proportionately.  The bonds tend to have a term of 3 to 5 years.  There are variations on this basic design and hence providers usually make limited issues of these products.

ISA’s or PEP Transfers can be used to help shelter income (and possible capital growth) from tax.

Tax situation

Investors have no personal liability to UK income tax or capital gains tax for investment held within a PEP or ISA.  Depending on the type of bond there are two possible taxation situations.  If the investment is into UK funds via a bond, then any income payments are net of tax and there is no further tax liability to lower of basic rate taxpayers.  Higher rate taxpayers may have an additional (20%) income tax liability.

If investors do opt for capital growth instead of income, then they will be subject to capital gains tax on gains over and above the annual exemption, after allowing for taper relief.  If the investment is into shares of a company then investors who are lower or basic rate taxpayers usually a 10% tax liability and higher rate taxpayers are usually subject to 32.5% of the net distribution payable.  If investors do opt for capital growth instead of income, then they will be subject to capital gains tax on gains over and above the annual exemption and minus any tapering relief.

Ashton Hoyle will only recommend Guaranteed Income Bonds that offer a 100% capital guarantee unless instructed otherwise.