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Julian Gibbs

Ron Sandler quite rightly pointed out that life insurance investment bonds are attractive to higher-rate taxpayers but it is questionable whether the Chancellor will withdraw their benefits and, even if he does, he is most unlikely to do it retrospectively. It is wise, therefore, for IFAs to advise higher-rate taxpaying clients to use investment bonds as part of their portfolio, especially if they are likely to need the 5 per cent tax-free income concession.

Even if more conservative clients do not wish to take risks, they can use an investment bond linked to a fund investing in UK gilts. However, at current levels, I believe that equity funds will give by far the best returns, especially as most of the major markets are around 40 per cent or more off their highs.

Provided that stockmarkets recover over the next year or so, which I expect them to do, with-profits bonds are the lower-risk answer for the more cautious but do make sure you choose funds that are well backed or have a strong parent company. Those companies with most of their assets invested in equities or commercial property should outperform those invested mainly in fixed-interest investments.

It is worth remembering also that one of the biggest benefits of investment bonds is that they are the only asset which it is possible to give away without triggering a tax liability.

Investment bonds are particularly useful for those who are higher-rate taxpayers now and are likely to become basic-rate taxpayers when they retire and, effectively, can enjoy a 5 per cent tax-free income, equivalent to 8.33 per cent growth, for ever.

I believes that much more use should be made of investment bonds while these benefits are still available.

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