Invest a lump sum and have the added flexibility of taking an income
- Invest from £5,000 to £150,000
- Guaranteed amount after five years
- Possible annual and final bonuses
- Option to take an income of between 2 and 5%
About this policy
The Income Bond provides you with the ability to invest a lump sum, whilst having the option to take an income (if required). This type of plan is designed for the medium to long-term, with the added flexibility of taking an income straight away, or leaving the money invested to build up bonuses until you are ready to take an income.
You can then choose to take an income of between 2% and 5% either monthly, quarterly, half-yearly or annually - with no immediate tax implications.
What are they?
The bond is a single premium life policy designed for a minimum investment period of five years, allowing you to take a regular income from your investment - perhaps during your retirement.
There is also the potential for capital growth as your lump sum (the initial investment) is invested in our with-profits fund from which, depending on investment performance, we aim to pay bonuses each year. On encashment and subject to the conditions outlined below, you will receive the capital balance (the initial investment less income and partial withdrawals) plus bonuses added during the life of the policy.
For additional peace of mind the bond also has a capital guarantee after five years.
Who are they for?
Anyone over the age of 18 who is looking to invest a lump sum and requires the option to take an income.
The plan can be opened in joint names.
Why open one?
A bond with guarantees and the option to take an income with the added peace of mind that your money is covered by the Financial Services Compensation Scheme... what's not to like?
Frequently asked questions
Our most commonly asked questions surrounding the Income Bond can be found below.
The minimum investment is £5,000 with a maximum in any one calendar year (January to December) of £150,000 either per individual or in joint names.
You can take income withdrawals of up to 5% of the initial investment each year, without any immediate tax implications (see below), until the total you have withdrawn equals the initial investment amount. Once you have made withdrawals equal to your initial investment this allowance stops. Any of this annual allowance that is unused can be carried forward to future years so, for example, if you have not made an income withdrawal from your bond in the first five full years since issue, you could take up to 25% as a partial withdrawal (without any immediate tax implications).
You can choose the amount you would like as annual income of between 2% and 5% and this will be paid directly to your bank account. You choose when you would like to be paid, either monthly, quarterly, half yearly or annually.
Please note that the minimum investment for taking monthly income withdrawals is £10,000.
Taking a lower amount as income will allow greater opportunity for capital growth over the years as there is always the risk that your chosen amount of income withdrawal could reduce the value of your bond to an amount less than you originally invested. For example, if you choose to withdraw 5% per annum and the bonuses added are less than 5% per annum, your initial investment would fall.
Not looking to take an income? Take a look at our Investment Bond.
We invest in a range of different assets with the aim of providing a higher return in the medium to long-term than is achievable with a bank or building society account. Sheffield Mutual's with-profits fund is managed to provide a low to medium risk investment, appealing to anyone with a more cautious approach to investment. Our investments include property, shares of UK companies, government gilts, corporate bonds, commercial mortgages and cash.
The proportion held in each of these will vary depending on market conditions. You'll be pleased to know that we seek to adopt an ethical approach to investing and it is our policy not to invest knowingly or directly in industries relating to armaments, tobacco, gambling or pornography.
We invest our funds as described in the previous section and receive a return on those investments which can vary from year to year. At the end of March or early April we review the returns achieved during the previous calendar year and declare a bonus rate for each policy type for that period. The rate varies depending upon overall investment returns and, therefore, bonuses are not guaranteed to be paid at the same rate, or at all, in future years.
Bonuses are calculated at the appropriate rate based on the capital balance (the initial investment less income and partial withdrawals) plus any bonuses added in previous years. On encashment and providing there is no market value reduction (see below) you will receive the capital balance plus bonuses added during the life of the policy.
We also try to 'smooth' returns over the life of the policy by retaining some of the investment return in good years to maintain bonus rates in poorer years. However, to ensure you receive a fair share of returns on your policy over its lifetime there may be an additional terminal bonus paid on maturity. Payment of this type of bonus depends entirely on investment performance and the rate at which annual bonuses have been added and is not guaranteed.
The bond has no fixed term but the recommended minimum investment period is five years. It is possible to surrender your bond within the first five years by giving one months notice, but doing so will incur a surrender penalty. Should you need to withdraw some of your capital (money) at a future date we can invest your lump sum in multiple policies, with a minimum of £5,000 per policy, which will enable you to withdraw part of your investment without having to surrender (cash in) your entire investment. However, if you surrender a policy within the first five years a surrender penalty will be incurred and you may receive back less than you invested. Any withdrawals of this nature will also affect the level of income provided from your capital.
In cases where withdrawal or surrender occurs the Society reserves the right to apply a market value reduction (MVR) in times of adverse investment conditions to ensure you receive your fair share and other members are not disadvantaged. An MVR will not be applied in the event of the policy becoming a claim as a result of the death of the single policyholder, or the death of the second policyholder for joint life policies.
The money you save is invested in a fund on which the Society pays tax and tax at the basic rate may be treated as paid on any taxable gain, which means there is likely to be no further tax to pay unless you are taxable at the higher rate. However, a gain on which tax is treated as paid may have an effect on your tax liability if you qualify for age-related allowances or reliefs, or you are receiving tax credits.
There are no immediate tax implications for income withdrawals as long as no more than 5% of the initial investment is withdrawn annually. This is because current taxation rules allow for the withdrawal of the full initial amount invested spread over a 20 year period from the issue of the bond. Any potential income tax liability is deferred until the bond comes to an end, at which point a final calculation is made to see if there is any taxable gain. Currently there are no further tax implications for basic rate taxpayers.
If you die the people who inherit your bond may have to pay inheritance tax and income tax.
All references to taxation are based on the Society’s understanding of current tax legislation and practice, which may change in the future.
The amount payable on the death of a single policyholder, or the death of the second policyholder for joint life policies, is 101% of the capital balance (the initial investment less income and partial withdrawals) or the value of the policy (the capital balance plus added bonuses), whichever is greater.
When you open a policy with us, you will automatically become a member of the Society (adult policyholders only). As well as being able to have your say on how the Society is run each year, you will also have access to various discretionary benefits when available, such as optical and dental grants, as well as exclusive access to a range of discounts and offers.
Our team would be more than happy to provide you with factual information about our products and services, so you can make your own decision about how to proceed. However, we are unable to give any advice or recommendations on the suitability of our products. If you are unsure, you should seek advice from a qualified financial adviser, which may incur a fee.
To comply with regulations, we will require confirmation of your identification and address. We’ll aim to do this using an electronic verification system, but reserve the right to ask for appropriate documentation from you, if this is not possible.
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