Onshore Investment Bonds are subject to UK Corporation Tax on the underlying funds. Interest, rental income, and gains are taxed at up to 20% (but dividend distributions are tax free). 

The tax due is deducted from the Bond. Policyholders receive a basic rate tax credit in relation to the Corporation Tax already paid on the gain, even if the effective tax rate applied to the gain is below 20%. Therefore, further tax is only payable by the policyholder if the chargeable gain, when added to all other income in the tax year, takes them into the higher rate band and above. 

• HSBC Life calculates the tax liability daily and settles every month in arrears  

• HSBC policyholders are the beneficial owners of the Bond assets – the tax deducted from their Bond satisfies any basic rate tax liability on it 

• Tax is deducted from the HSBC Onshore Bond Cash Account 

• Our (six monthly) Statements show a ‘Tax Deduction’ (Transactions in Cash column) every month  

• There is a credit if the value of the funds held falls in value over the period, but only up to the amount of any previous deductions for gains 

• A Tax Credit is shown as a minus figure (e.g. -£1,693.87) in the Statement 

 

By planning ahead, your clients may be able to take advantage of opportunities to minimise their tax liability when they take proceeds from their HSBC Life Onshore Investment Bond. 

5% yearly withdrawal allowance – For up to 20 years without incurring immediate liability to Income Tax. If your client does not use up their allowance in any given year, they can carry it forward for future use.  

The maximum permitted regular withdrawal from the HSBC Life Onshore Investment Bond is 10% each year. Adviser charges will count towards the 5% withdrawal allowance if paid via the Bond.

Top slicing – If the gain from an onshore investment bond pushes an investor into a higher rate Income Tax band they may claim ‘top slicing’ relief which may reduce or remove their liability to higher rate Income Tax on a chargeable event gain. 

Multiple policies – Each HSBC Life Onshore Investment Bond is divided into individual policies (up to 1,200). Proceeds can be taken across all policies or by fully surrendering a number of individual policies – or a combination of both. 

The most appropriate method will depend on the chargeable event rules, prevailing tax rates and the client’s personal tax circumstances. 

Personal Savings Allowance – Chargeable event gains can be offset against the Personal Savings Allowance if investors are higher rate taxpayers. This is not available for additional rate taxpayers and depends on other savings income to be offset. 

Personal allowances for higher earners – The personal allowance of higher earners is reduced, or even lost, if their total income exceeds a certain amount – irrespective of age. If income – including the total gain on their investment bond – is below that amount, then the Personal Savings Allowance is not affected. 

If the value of your client’s estate when they die will be more than the current nil rate band of £325,000, the excess amount will be subject to Inheritance Tax. This Tax is also payable on any lifetime chargeable transfers or lifetime transfers that become chargeable. 

A client’s HSBC Life Onshore Investment Bond can continue until the death of the last surviving life insured. The option to insure up to 10 lives offers the flexibility to shelter assets from Inheritance Tax liability over several generations use the Inheritance Tax Calculator to assess potential liability. 

Our Trust solutions can help reduce the value of the client’s estate. As a Trustee, the client can control how the trust fund is invested and when a beneficiary can benefit.  

The client may also choose to receive regular payments from the Trust. The Trust will avoid the need for probate on the client’s death so that funds can be made available more quickly. 

The HSBC trust solutions are: 

• HSBC Discounted Gift Trust  

• HSBC Loan Trust  

• HSBC Gift Trust