Why onshore bonds are back on the agenda

For professional advisers only, not for client use

Onshore bonds are established planning tools, but they are receiving more attention in our conversations with IFAs. The questions are practical: where might an onshore bond fit within a client's wider financial plan and how should the investment service sit alongside it?

This does not mean the wrapper is right for every client, or that tax should drive the investment decision. It means wrapper choice needs to be considered alongside the investment proposition. As with any other investment, they may fall as well as rise in value and your client may receive back less than their initial investment. Tax treatment depends on individual circumstances and is subject to change.

Wrapper selection has practical consequences. An onshore investment bond can offer potential features that differ from pensions, ISAs and direct investments, depending on the client's circumstances and the policy terms. These may include:

• Tax deferred withdrawals of up to 5% of the original investment each year, subject to applicable rules and conditions

• The ability to assign a policy without triggering an immediate chargeable event in certain circumstances

• Potential tax planning where gains are realised when the client is a basic rate taxpayer, including in retirement

The structure may also offer administrative simplicity and access to a broad range of underlying investments. These features can make a bond relevant where pension and ISA allowances are fully used, or where assets need to be held within a wider plan. Suitability still depends on the client's objectives, tax position, liquidity needs and wider circumstances.

Where an onshore bond is appropriate, the underlying investment service must work operationally, so the model must be available through the wrapper and its assets must meet availability requirements.

We have therefore made the Core and Index MPS ranges available through onshore bond wrappers on:

• AJ Bell using the Countrywide Assured bond wrapper

• Aviva

• M&G using the Chesnara Life bond wrapper

• Quilter

• Transact

We have created bond versions to meet asset availability requirements and worked with providers to confirm compatibility and readiness. Advisers should select the designated bond version when investing through an onshore bond wrapper.

Core is designed for actively managed, risk targeted portfolios. Index is centred on passive investments and strategic asset allocation. The choice of investment approach remains separate from the choice of wrapper.

A wrapper can address planning needs, but it does not determine the investment approach. Advisers still need to assess risk, objectives, time horizon and access alongside tax and wrapper considerations.

The interest we are seeing is not about finding a universal answer. It is about giving advisers options when a client's circumstances point towards an onshore bond. Wider platform availability means the wrapper and the investment management service can be considered together.

The purpose of this extension is to give IFAs another route when considering our MPS ranges within a wider plan, while retaining the choice of wrapper and investment approach.

If you would like to discuss how this could fit within your clients' wider plans, please speak to your usual Evelyn Partners contact.