Last Updated on 20th June 2023
When you assign an investment bond or policy segment the person you have assigned it to becomes the beneficial owner, as if they had owned the bond from day one i.e. the start date of the investment.
What are the Benefits of Assigning?
No Capital Gains Tax: It is possible to gift an investment bond to an adult child without causing a capital gains tax charge. Gifting other types of investment would be a disposal for capital gains tax purposes.
No Initial Income Tax Charge: An assignment does not trigger a chargeable event and does not give rise to an income tax charge, provided the assignment is not for money or money’s worth. If you are making a gift then that is not for money or money’s worth.
Transfer to a Trust: It is possible to transfer an investment bond to an individual or to a trust for inheritance tax planning without causing an income tax or capital gains tax charge.
Minimise Income Tax: Providing an outright gift is made it’s possible to minimise income tax on encashment by putting the investment bond or segments of the investment bond into the hands of a taxpayer who will pay a lower rate of tax on encashment.
Inheritance Tax Planning: The assignment is technically a gift for Inheritance Tax purposes. Any gift you make is taken into account for Inheritance Tax purposes. If you survive for 7 years after making the gift then the full value of the bonds should fall outside your estate for Inheritance Tax calculation purposes.
Other Tax Planning Opportunities when Assigning a Bond
University Funding – A policyholder can assign an investment bond to an adult child to cover university costs at a time when the child’s personal allowance is unused and/or there would be no further tax to pay on an onshore investment bond because any gain, or top-sliced gain, would be within the basic rate tax bracket (assuming the student is a non, lower or basic rate taxpayer). By assigning your bonds they can use them for themselves if needed and when needed to provide financial assistance through university. It may even be that you gradually assign bonds over to fund education.
Efficient Income Planning – Assigning the policy to a lower rate tax payer within your family when/if income or capital needs as again, similar to the above, you can control tax liabilities.
Disadvantages of Assignment
The bond is now owned by another person. You lose control, it is not your money anymore.
If this new person/owner dies then the full value of the bond could be taken into account for inheritance tax if you have not used a trust.
If this new owner divorces then the full value of the bonds could be taken into account in any divorce settlement.
Our view
Insurance investment bonds represent one of the most flexible investment products available in the market and have been so since 1968 (when the relvant tax law came into force).
They are tax efficient in terms of the underlying assets growing free of any deduction of capital gains tax or income tax, they also attract both time apportionment relief and top slicing relief.
Currently, insurance bonds may not be included in any means tests (for example, for care home fee’s).
Finally, as mentioned above, bonds can easily have ownership changes by deed of assigment or be placed in trust (as they are life insurance fund investments) – this can offer excellent opportunities for tax and estate planning.