Investment Bonds: A Tax-Efficient Wealth- Building Option
Investment bonds offer a tax-efficient way to build wealth, offering benefits including compounding growth, estate planning flexibility, and a means of funding future expenses.
Some of the key features of Investment Bonds include:
• Tax Efficiency:
Earnings and capital gains are taxed within the bond itself at a maximum of 30%, rather than at your marginal tax rate. Actual tax rates may be lower due to credits and tax provisioning, enhancing after-tax returns.
• Reinvestment of Earnings:
Income is reinvested, compounding investment growth over time.
• Flexible Access:
While designed to be held for at least 10 years to maximise tax benefits, funds can be accessed at any time.
• Invest On Behalf of Children:
You can tax-effectively establish a savings plan for children or grandchildren, with either a one-off investment or regular contributions.
• Estate Planning Benefits:
Allows beneficiary nominations (individuals or entities) and flexible ownership transfer options for generational wealth planning, bypassing your estate to provide asset protection.
Investment bonds can be used in many ways, including to fund education expenses. Parents or grandparents can invest in the name of a child, or in their own name with the child as a beneficiary. Over time, the bond grows in value, and the proceeds can be used for educational costs, such as school fees, university tuition, or other related expenses. Withdrawals after 10 years can be made tax-free. Withdrawals made before the 10-year period may incur additional tax liabilities.
The bonds allow a contribution of up to 125% of the prior year’s contributions, without resetting the 10-year tax-free period.
For example:
• If you contribute $10,000 in the first year, you can contribute up to a further $12,500 in the second year, $15,625 in the third year, and so on, without resetting the 10 year period.
• If contributions exceed 125% in a given year, the 10-year period resets, which can affect future tax planning.
If you’d like to explore how investment bonds might align with your financial goals, please contact our office.