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The Bind of Bonds

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The potential issue with investment bonds, whether on or offshore is that upon death Income Tax is payable on the profits made. If the bond is sold during the holder’s lifetime, any Income Tax charge payable on those profits can be offset using a tax efficient investment vehicle such as an EIS.

An EIS is a series of tax reliefs provided by the Government launched in 1994. It is designed to encourage investments in small, unquoted companies, trading in the UK with a qualifying trade.

Even where a bond is a perfect investment vehicle for the client, offsetting the Tax charge is a very useful exercise to off-set the gain in the client’s lifetime.

For example: a 250k bond is sold creating a chargeable gain and Income Tax becomes payable, let’s assume the amount is 15k. The client could potentially invest 50k into an EIS and benefit from 30% of 15k which will in essence negate the Income Tax liability on the sale of the bond. Having invested into the EIS, after 2 years this could qualify for 100% of IHT relief through Business Relief.

Taking a longer view.  in 4-5 years the EIS can be liquidated and invested elsewhere now that it has done its job of offsetting the Income Tax charge. Another EIS for another 30% relief or invested into another B/R qualifying investment, retaining the IHT relief to do the same.

If a client has a potential Tax liability in the last tax year or the current one planning and investigating the bonus of EIS could free the client from the bind of bonds. We at SW Law Financial Planning and Investment are happy to talk through possible solutions.



Sharron A Higgins Ba (Hons) CeCM Cert CII Cert BB&C

Financial Administrator