On-Demand Events
Session 002: Bond taxation while invested
18 Feb 25 5 min read
Since the 2022 Autumn Statement there’s been an increased demand for information about onshore and offshore bonds. In response to this, we’ve designed six bite-sized sessions covering the basics of bonds and some of the more technical aspects like taxation.
This is the second session of the six-part series.
Barrie Dawson (Senior Technical Manager, M&G)
Graeme Robb (Senior Technical Manager, M&G)
In this session, we look at the internal taxation of bonds, the 5% tax deferred allowance, the 20-year rule and when to (and not to) use the tax deferred allowance.
60 minute video (approximately) I Structured CPD accredited by CII and CISI
Learning outcomes
By the end of this session, you will be able to:
- Describe the taxation of onshore and offshore bonds during the investment journey.
- Understand the mechanics of the 5% tax deferred allowance and 20-year rule.
- Identify when to use the 5% tax deferred allowance to improve tax efficiency for individuals and trustees.
Claiming your CPD
To claim your CPD certificate, test your knowledge with the questions below.
Write down your answers to each of the following questions and check your answers when you click to claim your CPD certificate on the link below
1. Which of the following statements is true about onshore bond taxation?
A) All capital gains are taxed at 20%.
B) Corporation tax on capital gains can be less than 20%.
C) Dividends are exempt due to indexation relief.
D) Interest is subject to basic rate income tax of 20%.
2. Bob invested £300,000 into a bond on 6 July 2021. On 18 February 2025 he withdraws £70,000 across all segments. No previous withdrawals taken. Which of the following statements is false?
A) The withdrawal creates an excess gain of £10,000.
B) The excess event occurs in the 2024/25 tax year.
C) The excess event occurs in the 2025/26 tax year.
D) He will accrue £15,000 tax deferred allowance in policy year five.
3. £200,000 is invested into a bond. A regular withdrawal of 2.5% of the investment premium is taken from outset but 0.5% of this is an ongoing adviser charge. How much tax deferred allowance is not used by this withdrawal instruction each policy year?
A) £1,000.
B) £4,000.
C) £5,000.
D) £10,000.
4. In relation to the 20-year rule, which of the following statements is false?
A) Unused taxed deferred allowance can be carried forward beyond 20 policy years.
B) Each premium accrues 5% tax deferred allowance each year for 20 policy years.
C) Top-up premiums have their own 20-year tax deferred allowance tranche.
D) A chargeable event occurs on the 20th anniversary.
1. Which of the following statements is true about onshore bond taxation?
A) All capital gains are taxed at 20%.
B) Corporation tax on capital gains can be less than 20%.
C) Dividends are exempt due to indexation relief.
D) Interest is subject to basic rate income tax of 20%.
2. Bob invested £300,000 into a bond on 6 July 2021. On 18 February 2025 he withdraws £70,000 across all segments. No previous withdrawals taken. Which of the following statements is false?
A) The withdrawal creates an excess gain of £10,000.
B) The excess event occurs in the 2024/25 tax year.
C) The excess event occurs in the 2025/26 tax year.
D) He will accrue £15,000 tax deferred allowance in policy year five.
3. £200,000 is invested into a bond. A regular withdrawal of 2.5% of the investment premium is taken from outset but 0.5% of this is an ongoing adviser charge. How much tax deferred allowance is not used by this withdrawal instruction each policy year?
A) £1,000.
B) £4,000.
C) £5,000.
D) £10,000.
4. In relation to the 20-year rule, which of the following statements is false?
A) Unused taxed deferred allowance can be carried forward beyond 20 policy years.
B) Each premium accrues 5% tax deferred allowance each year for 20 policy years.
C) Top-up premiums have their own 20-year tax deferred allowance tranche.
D) A chargeable event occurs on the 20th anniversary.
Before collecting your certificate, please take a moment to provide us feedback on this session, please email prudential.distribution.team@prudential.co.uk
Complete the form below and we’ll email your CPD confirmation to you. Please use the email address that you would usually use when contacting us.
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