A third of advisers believe that the tax benefits of onshore bonds’ are being overlooked and becoming an underestimated investment, according to research by Canada Life.
Out of 244 financial advisers surveyed, 32 per cent said onshore bonds are more useful than most advisers believe and 43 per cent argued that they play an important role in financial planning.
After tax, a £50,000 investment in an onshore bond could deliver £4,500, or 6 per cent, more than a collective investment over ten years, stated Canada Life. Over 20 years, with £200,000 invested, an onshore bond delivers almost £80,000, or 18 per cent more.
For clients who take out onshore bonds, capital growth is the most commonly cited priority with 48 per cent, closely followed by tax and estate planning with 43 per cent.
Separate research by Canada Life also found that the net return from investing in an onshore bond could potentially be superior in the long run, compared to investing in collectives, such as unit trusts and open-ended investment companies.
A higher rate tax payer, with £50,000 to invest, could expect to receive £4,557 (net of all taxation) after 10 years by investing in an onshore bond rather than a collective; a difference of 6 per cent.
The divergence increases to 9 per cent with a collective investment delivering a net return of £291,179 compared to the £316,590 delivered by the onshore bond, with £200,000 invested over the same 10-year period.
Over 20 years, with £200,000 invested, this grows further with the onshore bond producing a return 18 per cent higher than the collective investment - £501,145 compared to £424,251 - a difference of £76,894.
Nick Harding, propositions and marketing director for distribution at Canada Life, said: “It’s clear despite many advisers extolling the benefits of investing in onshore bonds, a large segment of the market is missing out on what can be a highly beneficial source of investment returns.
“We are firm believers in the role onshore bonds have to play in a professional adviser’s arsenal.
“As our research clearly shows, over the long term, in the right circumstances investing in an onshore bond can potentially provide superior returns to collective investments such as Oeics. In particular the tax deferral characteristics of onshore bonds are still an ideal option for higher rate tax payers.
Mr Harding added that by no means should such an investment be limited to just high earners, “as bonds can provide some respite for basic rate tax payers who are looking elsewhere in the face of rock bottom savings rates.”
ruth.gillbe@ft.com
