Investing Corporate Cash
There has been a significant growth in the use of UK Investment Bonds as investment vehicles for companies.
There are three main factors behind this trend:
(a) The introduction (in Finance Act 2008) of a "basic rate credit" mechanism for company owned bonds.
(b) A reduction in the rates of corporation tax. With effect from 1 April 2015 all companies within the scope of corporation tax will pay tax at a rate of 20%.
(c) The implementation of the Retail Distribution Review (RDR) ended "surrender penalties" thus making the bond more attractive to corporate investors.
The interaction of (a) and (b) means that from 1 April 2015 gains on company owned UK life assurance contracts will effectively be tax free. (This assumes that the current tax treatment of such bonds continues and that the proposed reduction in the corporation tax rate to 20% is implemented.)