Glossary · UK
What is Onshore Investment Bond?
A UK life-insurance-based investment where the fund pays corporation tax internally, giving the investor a 20% notional tax credit against further Income Tax.
Full Definition
An onshore investment bond is a single-premium life insurance policy used as an investment wrapper, issued by a UK-based life insurer. The underlying fund pays UK corporation tax on its income and gains internally, which means the investor receives a 20% notional (non-reclaimable) tax credit -- so a basic-rate taxpayer usually has no further Income Tax to pay on gains, while higher and additional-rate taxpayers pay the difference up to their marginal rate. This contrasts with an offshore bond, where the fund grows largely tax-free and the full gain is taxed on the investor when a chargeable event occurs. Onshore bonds allow tax-deferred withdrawals of up to 5% of the original investment each policy year (cumulative if unused) without an immediate tax charge, and gains are assessed under the chargeable event gain rules, with top slicing relief available to reduce the effect of a large gain pushing the investor into a higher tax band in the year it is taken.