Accessing the Funds

To access cash from a collective, the investor needs to make an encashment of units/shares. This could, to the extent the CGT exemption is exceeded, give rise to a CGT liability. The basis for calculating gains on partial encashment can mean that very little gain arises on small encashments in the early years.

To access cash from single premium investment bond, clients can use the 5% withdrawal facility, so no immediate tax charge will arise, irrespective of the investor's rate of tax, provided this 5% allowance is not exceeded. Of course, this is, in reality, tax deferral, which can mean that the ultimate chargeable event is deferred until the time the investor is a basic rate taxpayer, so no tax charge would arise. And remember, a bond can be assigned, for no consideration, to a lower/non-taxpayer without triggering a chargeable event.

And for investors aged 65 or over, the 5% withdrawals from onshore and offshore bonds are not added to income for age allowance purposes. Where the income is less than £20,100 in the current tax year, from a tax perspective, the bond has a significant advantage.

Switching Funds

For clients wishing to switch between different investment funds within a collective, this can trigger a disposal for CGT purposes if it exceeds the available annual exemption. Tax can therefore be a restraint to making investment decisions within a collective.

With a single premium investment bond, no tax charge arises on switches between different investment funds and so investment decisions can be made without worrying about tax.

It’s also the case that, depending on the provider selected; there is no cost to switching between life funds.