06: Higher rate taxpayers

If you are a higher rate taxpayer, you can defer a potential higher rate tax liability (up to 30% from 2010/11) on income withdrawals for up to 20 years by making annual withdrawals of up to 5% of the original investment.

Your tax liability on such withdrawals will not arise until the tax year in which the investment bond is surrendered, when an average annual gain is calculated by using a method known as ‘top slicing’.

If the bond is surrendered during a year when you are a basic rate taxpayer, you may have little or no tax liability. Investment bonds can therefore be particularly attractive if you are a higher rate taxpayer who expects to become a basic rate taxpayer at a later date.Last Updated