Why 20% isn't 20%: Exploring taxation of investment bond gains

Investment bond gains are taxed as ‘savings income' but this doesn't mean that the basic rate of tax applicable to savings income (20%) is what basic rate taxpayers will lose on the overall return. There are various reasons why the effective tax rate will be lower and in some cases that rate could even be as low as 0%. In order to work out how the returns will be impacted by tax you need to consider both the internal taxation of the investment as well as the tax payable by the investor. Internal taxation The internal taxation of offshore bonds is relatively straightforward. Offsh...