Are you paying too much tax on your wealth?

?By Russell Blackhurst, Lazenbys Financial Services – February 18, 2025

Are You Paying Too Much Tax on Your Wealth? Investment Bonds Could Be the Answer

If you’re a higher or additional rate taxpayer with ￡500k or more to invest, you might be losing more to tax than you need to. At Lazenbys Financial Services in Roundhay, ?Leeds, we’ve helped clients turn that around with Investment Bonds—a tax-efficient way to grow wealth without locking it away until retirement. Curious? Let’s explore how they work and whether they’re right for you.

Why Consider an Investment Bond?

Picture this: a retired business owner from Roundhay came to us last year. He’d maxed out his ISA and pension allowances but wanted his ￡600k portfolio to keep growing—without a 45% tax bite every year. An Investment Bond was the solution. It let him defer tax, reinvest gains, and even pass wealth to his grandkids efficiently. Could this work for you too?

An Investment Bond (IB) is a lump-sum investment wrapped in a tax-efficient structure. Unlike pensions (locked until age 57 from April 2028), IBs offer flexibility. You can’t add regular contributions, but top-ups are allowed. There are two types:

• Onshore Bonds: Taxed lightly within the fund (around 15% on average after tax credits), with no extra tax for basic rate taxpayers.
• Offshore Bonds: No income or capital gains tax inside the fund—growth rolls up until you withdraw, perfect for 40% or 45% taxpayers.

Key Benefits Tailored to You

Here’s why HNWIs love IBs:

• Tax Deferral: Offshore bonds delay tax until you cash out—by then, you might be a basic rate taxpayer or gifting it to family.
• 5% Withdrawals: Take up to 5% of your original investment each year (cumulative for 20 years) with no immediate tax—ideal for steady cash flow.
• Trust Planning: Segmented bonds (lasting 99 years) fit perfectly into trusts, unlike life-assured bonds that end on death.
• Growth Focus: If you don’t need income now, offshore bonds reinvest everything, maximizing returns.

An Example

We’ll call her Sarah. She invested ￡750k in an offshore bond. Over five years, she withdrew 5% annually (￡37,500) tax-free to fund travel, while her portfolio grew 6% a year. When she retires next year, she’ll cash out as a basic rate taxpayer—slashing her tax bill. At Lazenbys, we tailor this to her goals. What’s your vision?

How Tax Works (Simply Explained)

• Onshore: The fund pays ~15% tax internally (thanks to tax credits). If your total income stays below the higher rate band, you owe nothing more.
• Offshore: Tax hits only when you withdraw over 5%, surrender the bond, or it matures. The gain adds to your income, but top slicing relief can cut the bill by spreading it over the years.
• Gifting: Give your bond away (e.g., to heirs) without triggering tax—a powerful estate planning perk.

Is This Right for You?

Investment Bonds shine if:

• You’ve used your ISA (￡20k) and pension (￡60k) allowances.
• You’re a 40% or 45% taxpayer seeking tax efficiency.
• You want access to capital without pension-style restrictions.

Of course, there are risks—market dips can hit returns, and fees apply. That’s why we personalize every plan at Lazenbys, ensuring your ￡500k+ works as hard as you do.

Let’s Talk About Your Wealth

Ready to explore Investment Bonds? At Lazenbys Financial Services, your first consultation is free—no pressure, just clarity. Call us at 0113 322 0700 or visit www.lazenbysfs.co.uk to book. We’re based at Stable Mews, Beechwood Estate, Elmete Lane, Roundhay, Leeds LS8 2LQ. I live in Hebden Bridge, and look forward to meeting you.

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