Why onshore bonds are back on the agenda

For professional advisers only, not for client use. An onshore bond will not be suitable for every client, and tax should not drive an investment decision. Tax treatment depends on individual circumstances and may change. As with any investment, the value can fall as well as rise, and your client may receive back less than their initial investment.

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?

The renewed interest reflects three developments coming together. The tax landscape has become more complex, advisers are increasingly outsourcing investment management, and improved platform integration is making it easier to use managed portfolio solutions within an onshore bond wrapper. These factors may make it worth revisiting how wrapper choice and the investment proposition fit within a client’s wider plan.

Reduced capital gains tax (CGT) and dividend allowances, alongside wider estate-planning and pension inheritance tax (IHT) considerations, have prompted advisers to review how assets are held and managed. An onshore bond can offer 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.

Historically, onshore bonds have been viewed primarily as tax-planning wrappers, with advisers selecting individual funds from an insurer's range or managing the underlying portfolio themselves. That model does not always reflect how advisers work today.

As advisers increasingly outsource investment management, they may want the benefits of a managed portfolio service (MPS) alongside the planning flexibility of an onshore bond. An MPS can provide a defined investment approach, ongoing portfolio management and rebalancing, while the wrapper can form part of the client's wider financial plan.

This combination is not entirely new, but it has not always been straightforward to deliver. Rebalancing within an onshore bond can create additional operational requirements and the underlying assets in an MPS need to be available through the bond provider. Platform and provider readiness has therefore been an important part of making the proposition workable.

We have worked with providers to confirm compatibility and readiness, created bond versions to meet asset availability requirements and made our 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

Advisers should select the designated bond version when investing through an onshore bond wrapper. Availability and functionality remain subject to the relevant provider and policy terms.

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

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 more options when a client's circumstances point towards an onshore bond, while retaining choice over how the underlying assets are managed.

Wider platform availability means the wrapper and the investment management service can now be considered together more readily. For advisers who are increasingly outsourcing investment management, that can provide a more practical route to combining an appropriate wrapper with an established managed portfolio solution.

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