An Investment bond can be seen like a life assurance contract where investments are made in the medium to long term. Investment bonds allow you access a range of investment funds which in turn can invest in assets such as equities, corporate bonds, commercial property and gilts, managed by professional investment fund managers. They are designed to produce long term capital growth, but can also be used to generate an income.
The key difference between the two bond types is that onshore investment bonds (based in the United Kingdom) pay a tax equivalent to basic rate UK income tax of 20%, which is deducted from your investments. This means you effectively pay income tax on your bond indirectly (even if you are a non-taxpayer). Offshore investors do not have to pay this tax, which means your investments have the potential to grow in a more tax-friendly environment.
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