Quilter 17 Potential investment vehicles from Quilter Investment bonds are non-income producing assets, but are subject to income tax when ‘gains’ are realised. They are subject to the special provisions applicable to bonds known as chargeable event rules . One benefit of this type of investment is that partial withdrawals up to 5% per annum of the initial contribution do not give rise to any immediate liability to income tax. Moreover they are exempt from capital gains tax. Principally, any realised gains will be assessed on the settlor of the trust if they are still alive, then assessed on the trustees or the beneficiaries depending on the type of trust and who realises the gain. Under current rules, using a bond could reduce the frequency which the Trustees have to update the register, or remove the need to use it completely. A bond will only create a tax liability when a chargeable event occurs. Under chargeable event rules, a gain is taxable on the settlor of a discretionary trust/IIP trust during their lifetime and in the tax year of death. Only after this point would the trustees be taxable and be required to use the register. Instead of creating any gains themselves, the trustees could consider assigning the bond to the beneficiaries to encash at their marginal rate of income tax. In this case, the trustees would only need to use the register if an inheritance tax charge applies. Bonds are normally made as a single contribution investment and allow access to a wide range of funds. These are available as a collection of funds (which can be selected to provide the appropriate mixture of income and capital appreciation with the opportunity to use the annual CGT exemption) or a fund that gives the ability to change underlying investments without CGT implications. Using these funds means that investment vehicles can be structured to suit any trust, although they would involve more tax reporting than bonds as they produce income (dividend or interest). Again, these are normally single contribution investments, with access to a wide range of funds. Investment bonds UK authorised investment funds – collectives