Life Assurance Bonds

updated: January 22, 2010

Life assurance bonds are a very useful type of investment product, not least because of their unusual tax treatment.

They can provide benefits for all types of investors and are particularly useful for investors who require a regular income, or wish to reduce the tax on their investments, or wish to reduce their inheritance tax bill or are thinking of a possible need at some time in the future for residential nursing care.

The term ‘life assurance bond’ is the general term for a range of investments that are more often known by the type of underlying fund or funds which they offer.  In this respect a life assurance bond could be likened to an ice cream cornet into which different combinations of scoops of ice cream can be held. 

Life assurance bonds are, not unexpectedly, investments offered by life assurance companies and it is this that provides them with their unusual tax treatment.  The actual life assurance element will be very small, ie usually no more than 1% of the amount invested.

The Taxes Act 1988 specifies that single premium life assurance policies cannot be ‘qualifying’ policies.  It is not important for the purposes of this fact sheet to understand what a ‘qualifying’ or ‘non-qualifying’ policy is.  However, we can say that it is as a result of the ‘non-qualifying’ designation given to life assurance bonds that determines their tax treatment under that Act.

To obtain further information please click here for our pdf Guide to Life Assurance Bonds.