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Investment bonds suffer in proposed tax changes

Investment bonds may be much less attractive to 40% taxpayers after the Pre-Budget Report.

One of the provisions in the report, which passed by comparatively unnoticed, makes onshore investment bonds less attractive. It was one of the less obvious implications of the changes to capital gains tax.

Philip Wise, managing director of Spofforths Financial Planning, says: ‘If investors hold onshore investment bonds then they should review them urgently. It may be sensible to shift to an alternative form of investment.

‘The present CGT arrangements mean that 40% taxpayers can be better off holding investment bonds. However under the revised CGT regime many investors could benefit by switching to some of the more attractive investment funds.’

In essence, the new tax environment means that investors could be paying significantly more in tax when they liquidate their assets. ‘Each case is different but investors should look at whether they would be shrewd to cash in any onshore investment bonds now and reinvest in a more tax-efficient vehicle.

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