Investment bonds (also known as insurance bonds) are ‘tax paid’ investments that can be used as a wealth-building strategy. They are a type of a life insurance policy with the features of a managed fund sold through life insurance companies and building societies.
Earnings, such as income and capital gains, made from a bond are excluded from the individual’s personal income since the bond provider pays tax at 30 per cent internally, leaving nothing to declare on a tax return. After ten years no further tax is payable.
Investors can top of up the amount in the fund as long as their subsequent investment does not exceed 125 per cent of the initial investment.
Doing so triggers the 125 per cent rule which sets back the 10-year benefit to year one for the newly invested amount.