Income bonds make a return

GUARANTEED income bonds are here again. After briefly disappearingafter an Inland Revenue decision to close a tax loophole that favoured them, they are staging a tentative comeback, writes Nic Cicutti.

A survey by Chase de Vere, a firm of financial advisers, shows some insurance companies are offering bonds to savers again.

Returns on offer are not as high as they were prior to the Budget in November. But their security, and the guaranteed net income they provide, give GIBs an edge over other investments. For basic-rate taxpayers, GIBs are often a better bet.

Donna O'Shea, a manager at Chase de Vere, explained: "GIB rates have been very buoyant, with some five-year rates considerably better than any other comparative fixed-interest investment.

"As a result, we are finding that they are becoming more popular with investors than at any time over the past two years."

In Chase de Vere's survey, a five-year bond from Consolidated Life pays 7.15 per cent net on sums of more than £2,000. Premium Life, another company, offers 7 per cent net on savings above £1,000.

Over three years, Consolidated Life offers 6.95 per cent net. AIG Life, a subsidiary of the US insurance giant American Life, pays 6.4 per cent net on savings above £5,000, rising to 6.8 per cent for sums above £50,000.

Until November, British insurance companies could avoid paying 25 per cent income tax, minus underlying expenses, normally levied on their underlying funds, by arranging for their funds to be managed by overseas insurers.

The device was used to provide higher returns for GIBs and other types of guaranteed stock market bonds until the Inland Revenue plugged the loophole.