Also, this is a highlights reel about Investment Bonds, not a deep dive! I am not covering everything you need to know, just some starting points to get you learning. And trust me, with these, you want to get across the fine print to maximise the opportunity and not have it bite you in the a$$ if you don’t understand what you’ve signed up for.  

Here are a few things to note about Investment Bonds. 

Tax Efficiency
People love tax savings, generally their eyes go like this 👀 when we hear there could be a tax benefit, but tax isn’t the only thing you need to think about. Nevertheless, one of the most common reason people are interested in Investment Bonds is because they are taxed inside the investment at the Company Tax Rate, 30%. If you are on a tax rate that is higher than that (or you expect to be in the future), there may be tax benefits. 

After holding an investment bond for 10 years, generally you pay no extra tax on your investment earnings and you don’t have to declare any income in your annual tax return. Here is a good article that goes through it in more detail.   

Make sure you read up on how CGT works on the sale of any investments.  

Transferring Ownership 

These nifty products can have some cool options to be able to have the Investment vest or transfer over to another person (say a child when they turn 18yrs or 25yrs) without any CGT liabilities.  

If that person ends up not being the person you want to have the money after all, you normally can change that without any dire consequences. They also generally are considered a non-estate asset... which can be a good thing if there is a messy family situation and you want certainty on who will get the money, or a crap thing if you’ve got your ex-spouse on that and you forgot to update it to your new and improved spouse who wouldn’t be able to get access to the cash. Ah, the messiness of life.  

125% Rule

The maximum you can contribute is normally 125% of whatever you contributed the year before... So, you either need to ensure you can contribute yearly or be comfortable that you will have whatever is in there grow without contributing any additional money if you don’t add funds in within the year. This is a very important point to consider (especially as cost of living has smashed many people’s discretionary income).  

If you forget or don’t have any available cash one year, then 125% of the $0 contributed is... 🥁$0. So, you don’t forego the monies already invested (they are subjected to usual investment volatility based on your investment selection), but you can’t add any more funds in, and will need to start a new Investment Bond (which has a new 10 year period start date) for any new monies you want to invest in these structures.  

*A word on Education Bonds, these are slightly different again. More like siblings than twins... They generally have ways to take out funds for Education Costs with some additional tax benefits. Do you research to see if they are a good fit if that’s what you’re investing for.  

Hope that helps!