Investment Bonds

These are one of the most common of investment frameworks and are the sole preserve of Insurance Companies, and although they are to all intents another form of collective investment scheme (like unit trusts) they are taxed as ‘non-qualifying’ insurance policies.

The main tax-advantage is the ability to withdraw 5% per year without paying tax. But this feature is not a tax-advantage to most people and its advantages are often widely overstated by those who sell these investments and often not well understood by most investors who buy them.

They have tax disadvantages as compared with other frameworks, because basic rate tax is deducted at source and cannot be reclaimed and capital gains are taxed within the fund and therefore losses cannot be offered against gains and gains cannot be offset against the personal CGT allowance.

They are often used to provide income using the 5% tax-free withdrawal allowance but in fact they are defined by the Inland Revenue as ‘non-income producing assets’ and are generally unsuited for the purpose.

Their main manifestations are Managed Funds, With-Profit Funds and Distribution Funds.

We generally find no reason to recommend them, as we feel there are much better alternatives.

Unit Trusts and Open-ended Investment Contracts (OEICS)

These are the collective investment schemes issued by the fund management companies and also by many Insurance companies who also run unit trust funds as well as Investment Bonds.

The fund management groups tend to have the more able fund managers as compared with the Insurance Companies and many of these groups have excellent trade records across a range of funds.

We find them most useful for investing in specific sector funds or single country funds

Investment Trusts

In terms of usage these are the poor relation to Investment Bonds and Unit Trusts, not because they are inferior but because they do not pay commission to financial advisers and are therefore largely ignored. In fact, in our view these have significant advantages over their rivals, because they have much lower management charges and have a closed-end structure. We therefore generally prefer investment trusts to insurance bonds or unit trusts.

Limited Partnerships

Most investment frameworks are provided by insurance companies or fund management companies and are classified as ‘regulated’ collective investment schemes. But for more specialist unregulated schemes, other structures are available. One of these is a Limited Partnership, which is widely used in commercial property schemes. We have seen exceptional returns for our clients using the Limited Partnership Structure.