Investment Bonds FAQs

Frequently asked questions

Bonds are investment products that aim to provide the potential for medium to long term growth on your money. Most will also provide a small amount of life cover (normally 101% of the policy value). When you cash an investment bond in, how much you get back generally depends on how well your investment has performed. Some investment bonds have a guarantee, if this applies to you, we will tell you on your annual statement.

Investment Bonds are a very flexible type of investment vehicle, in general they:

  • Can be owned jointly
  • Have no fixed term
  • Provide access to a wide range of funds with no tax implications when switching funds
  • Allow you to take an income by making regular withdrawals from the bond

There are different ways you can take money from your investment bond. The tax consequences can vary depending on how you choose to take money from your bond.

This guide will help you understand the way investment bonds are set up and how different ways you take your money can affect how much tax you pay. The examples in this guide are focused on taking a lump sum, but you will see from the ‘What can I do next’ section that there is different ways to take your money.

You must read this or speak to an adviser before you make any decisions.

Tax treatment depends on your individual circumstances. Your circumstances and tax rules may change in the future.

The tax position on death depends on whether the person who has died was the policy owner or the life assured. Bonds may be owned by more than one person and/or have more than one life assured. A bond with more than one life assured will almost always be set up to pay out on the death of the last surviving life assured.

Death of the Life Assured

Where a bond has more than one life assured the death of a life assured does not usually trigger a payout from the policy, most bonds will only pay out when the last surviving life assured dies. When this occurs the policy owner may have to pay Income Tax on the proceeds.

Death of the Policyholder

Many bonds are owned jointly and, on the death of one policyholder, their share will generally be inherited by the surviving policyholder. The value of the deceased policyholder’s share will form part of their estate for Inheritance Tax purposes.

On the death of the last surviving policyholder, the bond can be inherited by a beneficiary of the policyholder’s estate. There won’t be any Income Tax to pay until the bond is surrendered or the last life assured dies but its value could be chargeable to Inheritance Tax.

For more information please call us on 0345 300 2244. (opening hours and peak call times).

We apply charges for managing and administering your plan. The charges are based on the fund(s) you invest in and may depend on the type of payments paid. We normally refer to this as the annual management charge but in some cases there may be additional fees.

The charges payable are calculated daily and are reflected in the unit price of the fund each day. If we ever increase the rate of the annual management charge, we will give you reasonable notice of at least 3 months.

If you want information on your specific charges, please call on 0345 300 2244 (opening hours and peak call times).

There are a number of factors that will affect how much risk you are willing to take, including how long you plan to invest, your age and health, your income level, your investment goals, the source of your funds, and how much of your total assets the investment represents.

Understanding Risk

Over the longer term, investments could offer better returns than cash savings, but in trying to achieve higher returns this does mean more risk. When deciding how to invest your money, it's really important that you understand the risk levels involved in different investments, and work out how much risk you're comfortable with. It's also important to consider how long you want to hold your investment.

When you’re investing, you'll need to think about both your attitude to risk and your ability to absorb losses. Some people would be very unsettled by the prospect of the value of their investments falling, while others would be happy to take the risk of ups and downs in the stock market.

If you want to more information, give us a call on 0345 300 2244 (opening hours and peak call times).

One way in which you can help reduce the impact of any market volatility is to spread your investments across different asset classes and regions. For more information about investing across different asset classes take a look at this guide

We have fund prices and fund factsheets that shows the fund performance for most of our funds. The Fund factsheets help you compare funds.

We have created a step by step guide that should help you read and understand the fund factsheets:

If you do need more help, please call on 0345 300 2244 (opening hours and peak call times).

Fund name and approach

  • The Investment approach is usually found in the top left hand corner (Scottish Widows only). If you can’t find this, please call us on 0345 300 2244 (opening hours and peak call times).
  • The name of the fund is shown next, which also shows the share class and if it’s an accumulation or income fund
  • You will also find the date the factsheet was last updated.

Asset Allocation

  • This tells you what the fund invests in and the level of diversification.

Fund Aim

  • Whether the fund is focused on income, growth or a combination of both
  • What sorts of asset types the fund invests in (e.g. automotive, pharmaceutical)
  • What countries and regions the fund invests in (e.g. China, Asia).

Basic Fund Information

  • The fund information shows you when the fund launched and who the fund manager is
  • The fund manager is a key piece of information and can easily be researched through search engines to understand their track record compared to other fund managers
  • This also shows you how long the fund has been managed by that person
  • This can be useful when reviewing fund performance
  • The ISIN number lets you search for the fund online; on external sites you can find more information on the fund and compare a number of funds side by side. Click here for Morningstar website that allows you to do that.

Top ten holdings

  • The top 10 companies or funds the fund is invested and what percentage is held in each company/fund
  • The companies a fund manager invests in will depend on what the aims of the fund are.

Fund Rating Information

  • Financial Express (FE) – Crown Fund Ratings range from one to five
  • More crowns, the better a fund has performed in terms of stock picking, consistency and risk control
  • Gives an indication of how well the fund has performed compared with similar funds/peer group. The FE crown rating is regularly reviewed and may change.

Performance

  • There are two pieces of performance information: Discrete and Cumulative
  • Discrete shows you a snapshot of the performance in each calendar year whereas cumulative adds up performance over time to show overall growth or loss over one month, 3 months, 1 year, 3 years and 5 year periods
  • Discrete performance gives you an insight into the consistency of performance which may be hidden in the cumulative performance story
  • It is very important not to look at performance in isolation as it doesn’t indicate what could happen in the future
  • The value of investments can go down as well as up.

Quarterly Fund Manager Review

  • This is like a “school report” for the fund and reflects on what has happened over the last quarter but isn’t an indicator of future performance
  • This gives you an overview of what has happened in the markets and may explain downturns in performance
  • You can get a sense from this section on if there are fund specific performance issues or if it’s due to the wider market conditions.

Your annual statement will tell you what funds you are currently invested in.

Before you review your investments or go ahead and switch funds make sure you have read:

If you want to switch funds, give us a call on 0345 300 2244 (opening hours and peak call times).

It’s currently free to move, or switch between funds in investment bonds.

Remember that before making any changes to your investments, you should seek financial advice. If you don’t have a financial adviser, we can help you find one in your area.

We offer a variety of funds for investment bonds. Our range of funds includes exposure to different asset classes such as cash, bonds, property and equities. You should be aware that our investment bonds have different investment options that you can choose from. Not all funds are available for all investment bonds.

Please note, we may change the selection of funds we make available.

If you need any further help around funds, give us a call on 0345 300 2244 (opening hours and peak call times).

You may be able to make additional payments to your investment bond. You would need to tell us what fund(s) you want to invest into and in some cases we would need you to complete a form. Please call us on 0345 300 2244 (opening hours and peak call times) to discuss further.

You can find the value of your investment bond in your annual statement. This value would have been calculated on the date your statement was issued. If you want a current value, please call us on 0345 300 2244 (opening hours and peak call times).

If you are interested in withdrawing cash from your investment bond, just call us on 0345 300 2244 (opening hours and peak call times).

It is important to be aware that you can usually take a lump sum from a bond either by surrendering whole policy segments or by making a withdrawal from all policy segments. The tax implications of the two methods can be very different and it is important to understand the potential differences between them. This guide will help you understand the advantages and disadvantages of the two methods.

Sometimes different rules may apply to different types of bonds. We do have guides for most bonds, which can help you understand the different ways you can withdraw money and how it affects any tax you may have to pay. If you would like to find out more information or would like a copy of the guide for your bond please just call us on 0345 300 2244 (opening hours and peak call times).

There are no exit fees for cashing in your bond.

Most investment bonds need your instruction in writing, or by completing a form. Once we receive your instruction, we will make the payment to a bank account of the Bond holder.

You may be able to take a regular income (either monthly or annually) from your investment bond, just call us on 0345 300 2244 (opening hours and peak call times) and we will tell you if this is possible, it depends on how your investment bond was set up.

As long as the amount you take each year does not exceed 5% of the amount you invested, there will usually be no tax implications.

There are no exit fees for cashing in your bond.

Most investment bonds need your instruction in writing, or by completing a form. Once we receive your instruction, we will make the payment to a bank account of the Bond holder.

This guide will help you understand the way investment bonds are set up and how different ways you take your money can affect how much tax you pay.

Sometimes different rules may apply to different types of bonds. We do have guides for most bonds, which can help you understand the different ways you can withdraw money and how it affects any tax you may have to pay. If you would like to find out more information or would like a copy of the guide for your bond please just call us on 0345 300 2244 (opening hours and peak call times).

There may be tax implications when you cash in your investment bond fully, you should understand what that means for you before taking your money.

If you want to cash in your investment bond, please call us on 0345 300 2244 (opening hours and peak call times).

Sometimes different rules may apply to different types of bonds. We do have guides for most bonds, which can help you understand the different ways you can withdraw money and how it affects any tax you may have to pay. If you would like to find out more information or would like a copy of the guide for your bond please just call us on 0345 300 2244 (opening hours and peak call times).

Most investment bonds need your instruction in writing, or by completing a form. Once we receive your instruction, we will make the payment to a bank account of the Bond holder.

There are no exit fees for cashing in your bond.

Don't forget that you don't have to cash in all of your investment – you could take out just the money you need right now and leave the rest invested.

You can find the value of your investment bond in your annual statement. This value would have been calculated on the date your statement was issued. If you want a current value, please call us on 0345 300 2244 (opening hours and peak call times).

Choosing the right investment fund is an important decision you need to make and these choices can influence the performance of your product and ultimately how much you have.

Your annual statement will tell you where you are currently invested.

Before you review your investments or do a fund switch, you should look at the following information:

Remember that before making any changes to your investments, you should seek financial advice. If you don’t have a financial adviser, we can help you find one in your area.

It’s important to let us know if anything changes, like your address, or your name. This makes sure our records are always up to date so you don’t miss out on receiving any important information.

To change your address, call us on 0345 300 2244 (opening hours and peak call times). Or if you’re registered for our online services you can update your address whenever it suits you.

If you’ve changed your name call us on 0345 300 2244 (opening hours and peak call times) and we can let you know which official documents you’ll need to send to us and we will arrange for a form to be sent out to you.

In most cases the life assured and the policy holder will be the same person but it is possible for a bond to have multiple owners and lives assured. The lives assured can be different people to the policy owners.

If you are the only life covered, we’ll pay out the benefits of the plan to your estate. If the plan is written under trust, the payment will be made to the trustees.

If two lives or more are covered, when you apply to set up your plan, you will have chosen on which death the plan ends, in most cases, this is on the last death.

Please read the Taxation on death section to help you understand the tax implications on the death of a policy owner.

For more information please call us on 0345 300 2244. (opening hours and peak call times).

Further help from Scottish Widows

If you are not looking for advice, but need further help from us, please call 0345 300 2244. Our opening hours are Monday to Friday 8am to 6pm and Saturdays 9am to 12.30pm..


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