Capital redemption bonds: the investment bond with no life assured
A capital redemption bond is an investment bond written without a life assured. It is a contract for a fixed term, usually 99 years, under which the insurer promises a sum at the end, and it is taxed under exactly the same chargeable event rules as a life assurance bond: the 5% allowance, segments, top slicing relief and time apportionment all apply. The difference shows on a death. Because nobody's life is insured, the death of the owner is not a chargeable event. The bond passes to the executors and then to the heirs with its tax history intact, and the heirs decide when, and in whose hands, the gain is taken. For a grandmother of eighty funding a bond for her grandchildren, that is the difference between a £150,000 gain taxed as her income in the year she dies and no tax at all until the grandchildren choose.
Most offshore bonds are life assurance policies, and most of the time that is a technicality: the life cover is nominal and the policy is an investment. The technicality matters on one day, the day the last life assured dies, because that is a chargeable event whether or not anyone wanted the money then. Insurers in the Isle of Man and Dublin offer a second form of the same bond that removes the problem. This page explains what a capital redemption bond is, how it is taxed, what happens when its owner dies, and when it is the better form to ask for.
By Eldar Edmond Grady, CEO, PPLI.com. Research checked 19 October 2026. Covers UK law for 2026/27 as it applies to a UK-resident individual or UK trustees holding a capital redemption policy from a non-UK insurer. The Autumn Budget on 28 October 2026 had not been delivered when this was checked.
What a capital redemption bond is
The statute calls it a capital redemption policy: a contract made in the course of capital redemption business, which the Finance Act 2012 defines as contracts effected on actuarial calculations under which, in return for one or more fixed payments, a sum of a specified amount becomes payable at a future time (ITTOIA 2005 s.473; FA 2012 s.56). In plain terms, you pay a premium, the insurer invests it, and at the end of a fixed term the insurer pays what the policy is worth. No life is assured, so there are no lives assured to choose, no medical questions and no event triggered by anyone's death.
The term in the products we checked is 99 years. The "guaranteed minimum maturity value" that appears in the brochures is nominal: RL360's Oracle, for example, pays the plan value plus £100 at maturity. It is not capital protection and should not be read as such. In other respects the policy typically mirrors the life assurance version from the same insurer: the same fund range, charges and segment structure.
How it is taxed: the same chapter, the same rules
Chapter 9 of Part 4 of ITTOIA 2005 applies to capital redemption policies in the same way as to life policies. The chargeable events are maturity, full surrender, assignment for money or money's worth and part surrenders beyond the cumulative allowance (s.484). The 5% a year allowance under s.507 runs for twenty years from each premium. Top slicing relief under s.535 and s.536 is calculated the same way, with the years counted from the start of the policy for a final event. The reduction for years of non-residence under s.528 applies, because that section refers to a policy and a capital redemption policy is one. Maturity at the end of the term is a chargeable event like any other (IPTM7355), which with a 99-year term is rarely the event anyone is planning for.
Two historical quirks are worth knowing and almost never matter. A capital redemption policy issued before 23 February 1984 is not a foreign policy even if the insurer is abroad (IPTM3700). And where a capital redemption policy has been bought for money, the price paid replaces the earlier premiums in the gain calculation (s.494(2)). The personal portfolio bond rules apply to both forms, so a policy whose investments the owner selects is taxed on a deemed 15% gain each year whichever form it takes; our page on the personal portfolio bond rules sets out where the line is.
What happens when the owner dies
Death is a chargeable event only where a life insurance policy pays out benefits on it (s.484(1)(b)). A capital redemption policy has no life assured and pays nothing on a death, so there is no event. HMRC's manual puts it directly: a capital redemption policy will continue to run following the death of the beneficial owner and will pass into the estate (IPTM3240). The executors hold it, and in due course the legatee holds it, and the policy's history is unchanged: the premiums paid, the withdrawals taken, the 5% allowance used and unused, and the start date for counting the years all carry over, because s.491 and s.494 are written in terms of the policy rather than its owner. Jointly owned policies pass to the survivor.
One point for executors. If they surrender the policy while it is still in the estate, the gain is the estate's income, taxed at the basic rate with no top slicing relief (IPTM3240), and the beneficiaries receive the proceeds after that tax. If instead they assign the policy to the beneficiary, who surrenders it as owner, the gain is taxed at the beneficiary's own rates with top slicing over the full life of the policy. For a beneficiary who is a basic rate taxpayer that can mean no further tax at all; for one who is non-resident it can mean no UK tax at all. Our page on assigning an offshore bond covers the mechanics.
A worked example: one bond, two forms
A widow of eighty wants to set aside £1,000,000 for her three grandchildren, who are in their twenties and paying basic rate tax. She has a pension of £40,000 a year. She buys an offshore bond in 100 segments. Three years later she dies, when the bond is worth £1,150,000.
Life assurance form, with herself as the only life assured. Her death is a chargeable event. The gain is £150,000, the surrender value just before death less the premium, and it is her income for 2026/27, the year of death. Her adjusted net income becomes £190,000, so the personal allowance disappears and the personal savings allowance is nil. With three years for top slicing the relief comes to £9,705, and the tax caused by the gain is £56,512, payable by her executors out of the estate before anything reaches the grandchildren. The figures come from our top slicing relief calculator, which shows the working line by line.
Capital redemption form. Her death is not a chargeable event. The executors assign the segments to the three grandchildren under the will. Each grandchild now owns segments with a premium of £333,333 and a value of £383,333, and can surrender them in a year of their choosing, use the 5% allowance, or hold them for decades. If one surrenders all of his segments in 2027/28 with a salary of £35,000, the gain of £50,000 is spread over four years for top slicing, the slices sit within his basic rate band, and the bill is at the basic rate on savings income. The grandchildren decide when the tax is paid, and at whose rate.
The inheritance tax position is the same either way: the bond is in her estate at its open market value, in practice the surrender value, and the gift was never made in her lifetime. The difference is entirely in income tax, and entirely in who controls the timing.
The alternative: choosing the lives assured carefully
The life assurance form can be made to behave almost as well by writing the policy on several young lives assured, typically the grandchildren themselves, so that the death that triggers the event is a long way off. Insurers set a maximum number of lives and a maximum age, and the lives cannot be changed later. The limitations are practical: a policy on the lives of three grandchildren cannot add a fourth born next year, a life assured who emigrates is still a life assured, and a policy intended to pass down more than one generation eventually runs out of lives. The capital redemption form has none of these constraints, which is why trustees in particular tend to prefer it.
Trustees and the 99-year term
A discretionary trust can run for 125 years in England and Wales. A bond held by trustees on the life of the settlor ends, for tax purposes, when the settlor dies, usually in the middle of the trust's life and usually in a year the trustees did not choose. A capital redemption policy keeps going. Trustees can appoint segments out to beneficiaries as they come of age or need capital, each beneficiary surrenders at their own rates, and nothing forces an event on the trustees at the 45% trust rate. Insurers' technical teams make the same point in their trust literature (M&G, writing in Professional Paraplanner, June 2026). Our pages on discounted gift trusts and loan trusts and on inheritance tax planning with an offshore bond cover the trust structures themselves.
Inheritance tax
A capital redemption bond is an asset of the estate like any other investment. Its value on death is its open market value under IHTA 1984 s.160, which for a unit-linked bond is in practice the surrender value, though HMRC's manual notes that surrender value is not automatically market value (IHTM20083). The rule that values a lifetime gift of a policy at not less than the premiums paid applies to lifetime transfers only, not on death (IHTA 1984 s.167). A policy with a non-UK insurer is excluded property while its owner is not a long-term UK resident, which our page on the long-term residence test explains.
Who offers it
In the international market it is a standard option rather than a specialist product. RL360 in the Isle of Man writes Oracle as a capital redemption contract. Prudential International in Dublin publishes a single charge table covering both the life and the capital redemption versions of its International Investment Portfolio. Canada Life International in the Isle of Man and its Irish sister company offer a capital redemption option on the Premiere accounts, and Utmost International in the Isle of Man publishes a capital redemption key information document for Evolution. In the UK onshore market the form is rare, and we did not find a current UK insurer offering it when this page was checked. A bespoke policy of the kind described on this site can be asked for in capital redemption form, and for a UK family the question is worth putting to the insurer at the outset, since the form is fixed when the contract is written.
Questions about capital redemption bonds
What is a capital redemption bond?
An investment bond written as a contract for a fixed term, usually 99 years, rather than as a life assurance policy. The insurer promises a sum at the end of the term, there is no life assured, and the policy is taxed under the same chargeable event rules as a life assurance bond.
Is a capital redemption bond a life insurance policy?
No. It is a capital redemption policy, a separate category in ITTOIA 2005 s.473 and FA 2012 s.56. It insures nobody's life. The tax rules on gains, the 5% allowance and top slicing relief are the same as for a life policy, but the death of the owner does not end it.
What happens to a capital redemption bond when the owner dies?
Nothing happens for income tax. The owner's death is not a chargeable event because the policy does not pay out on a death. The bond passes into the estate and then to the beneficiaries with its tax history intact, and they decide when to surrender it. For inheritance tax it is in the estate at its market value.
Is the maturity value guaranteed?
Only nominally. The guaranteed minimum maturity value in the product literature is typically the plan value plus a token sum, and it applies only at the end of a 99-year term. The policy carries full investment risk in the meantime and is not capital-protected.
Does the 5% allowance apply to a capital redemption bond?
Yes, in exactly the same way: 5% of each premium for each policy year, cumulative, up to 100% over twenty years, with withdrawals within the allowance deferred rather than taxed. Time apportionment for years of non-residence and top slicing relief also apply.
Can trustees hold a capital redemption bond?
Yes, and many prefer it. Because no death ends the policy, trustees are never forced into a chargeable event at the 45% trust rate by the death of a settlor or life assured. They can appoint segments to beneficiaries over the life of the trust, and each beneficiary is taxed at their own rates when they surrender.
Can I buy a capital redemption bond from a UK insurer?
Rarely. The form is standard among Isle of Man and Irish insurers but we did not find a current UK onshore product offering it. A UK resident buying one will almost always be buying an offshore bond, with the tax treatment of a foreign policy: no tax in the fund, no basic rate credit, and the whole gain taxed as savings income.
PPLI.com is not authorised by the Financial Conduct Authority and does not give personal advice. This is general information about UK law, not an invitation or inducement to enter into any insurance or investment contract. Policies issued by insurers outside the UK are not protected by the Financial Services Compensation Scheme.
Sources and authorities
Read as at 19 October 2026 for the tax year 2026/27. Product facts are taken from the insurers' own documents and will change; the worked example is hypothetical and shows every step.
- ITTOIA 2005 s.473: policies and contracts to which Chapter 9 applies. s.484: chargeable events. s.491 and s.494: calculating the gain. s.507: the 5% allowance. s.528: reduction for years of non-residence.
- Finance Act 2012 s.56: the definition of capital redemption business.
- HMRC Insurance Policyholder Taxation Manual: IPTM3240 (death, personal representatives, capital redemption policies), IPTM3700 (foreign policies), IPTM3830 (number of years), IPTM7355 (maturity).
- IHTA 1984 s.167: valuation of life policies on lifetime transfers. HMRC Inheritance Tax Manual, IHTM20083 (surrender value and market value) and IHTM20241.
- Insurer documents (secondary sources, product facts only): RL360, Oracle capital redemption product guide; Prudential International, product charge tables, January 2026; Canada Life, Premiere and Premiere Europe accounts; Utmost International, Evolution document library; M&G in Professional Paraplanner, 1 June 2026, on capital redemption bonds in trust.
Last updated: 19 October 2026. See our editorial standards for how articles are researched and corrected.
Eldar leads PPLI.com’s strategy, research and partnerships. He acquired PPLI.com in 2020 and has worked on private placement life insurance since then.
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