Prudential Bond
Prudential International Prudence Bond
The Prudential International Bond (Spain) is a popular investment option for expatriates living in Spain. Despite being called a “bond,” this investment does not function like a traditional bond. Instead, it operates similarly to a UK ISA, operating as a tax-efficient investment wrapper that allows for growth through the funds held within it. The structure itself does not generate returns; rather, the performance of the underlying funds determines the investment’s growth.
The Prudential “Smoothing Effect”
One of the key advantages of this investment is Prudential’s unique “Smoothing Effect”, which helps reduce the impact of market volatility by averaging out short-term fluctuations. This approach ensures steady, stress-free, and inflation-beating returns over time. (You can read more about the smoothing effect here).
Expected Growth Rate
Prudential’s uses an Expected Growth Rate (EGR) to manage how the investment grows over time. The EGR is an annualised rate set every three months by Prudential’s investment managers, based on their outlook for future performance. This rate is applied daily to the value of the investment, helping to provide a smooth and predictable growth path.
Role of Unit Price Adjustments
In addition to EGR, Prudential uses Unit Price Adjustments (UPA) to keep the investment’s value in line with the actual performance of the underlying assets. UPAs can be upward or downward, depending on whether the real performance is better or worse than the smoothed value, ensuring the investment reflects market conditions over time.
Current Rates and Further Details
For example, as of February, 2025, the EGR for the PruFund Growth fund is 7.30%, meaning, the investment is expected to grow by this rate annually. To find the current EGR for any specific fund and currency, visit Prudential’s website. Remember, while these mechanisms aim for stability, your investment’s value can still go down, and you might get back less than you invested.
Estate Planning & Tax Efficiency
The Prudential Bond also offers important estate planning benefits. It can be set up in joint names, allowing 100% of the investment to pass to the surviving policyholder without the need for Spanish probate. Since the investment is held in Dublin, Ireland, it also provides inheritance tax advantages under Spanish tax law.
Is this investment right for me?
This investment is only available through financial advisers and is particularly suited to balanced and low-risk investors. Prudential offers a range of risk-rated funds, from Cautious to Balanced strategies, making it a solid choice for those seeking security and stable, long-term growth.
Given Prudential’s size, reputation, and strong brand recognition, particularly among UK expatriates, it is one of the most well-regarded Spanish-compliant bonds available. The bond is widely chosen for its security, steady performance, and modest but reliable returns.
Key Features & Benefits
Well-Known & Trusted Brand
Prudential is a globally recognised financial institution with strong investor confidence.
Smoothing Effect
Helps to reduce market volatility, ensuring consistent, if modest, returns.
Tax-Efficient Structure
Allows for tax deferral and proportional relief on withdrawals, improving overall returns. Read our guide to Spanish Compliant Bonds for a case study on the tax benefits.
Estate Planning Benefits
Can be held in joint names, ensuring seamless succession without lengthy Spanish probate procedures. Beneficiaries can also be designated.
Investor Protection
Backed by one of the world’s largest life insurance companies, with over £657 billion in funds under management.
Loyalty Bonus
Investors receive a 0.5% bonus for investments over £75,000 (€100,000) and 1.5% for investments over £150,000 (€200,000).
Multi-Currency Options
Available in GBP, EUR, and USD.
Considerations
My Verdict
The Prudential Bond is possibly the best investment option for expats in Spain seeking a low-risk, tax-efficient investment with steady returns. While it lacks the flexibility of competitor bonds, its strong track record, smoothing mechanism, and estate planning benefits make it a solid choice for those prioritising stability over high returns.
However, if you’re looking for an alternative with greater flexibility and different investment options, you may want to explore the Utmost Spanish Bond. It offers a different approach to tax efficiency and investment structuring, which may better suit your financial goals.
If you’d like to explore whether the Prudential Bond is right for you, feel free to contact me directly at +34 697206381 or fill out the form below.
Written by Henry Kent, Independent Financial Adviser at Holborn Assets, based in Portugal but lived in Spain previously. With over Eleven years advising expats across Europe.