An investment bond is defined as 'a single premium life assurance policy for the purposes of investment.'
To understand this better, consider each element of this definition: 'Single premium' means that a lump sum investment is made at the beginning of the life of the policy. Should you die whilst your bond is in existence the amount you originally invested (minus and withdrawals you have subsequently made) would be paid out to your estate, (or to your nominated beneficiaries if the bond is in trust). Hence bonds are a form of 'life insurance'.
The money you put into a bond is invested by the insurance company and is expected to make some form of growth throughout its life. As such they are an accepted form of 'collective investment' (see separate handout on 'Collective Investments'). A bond is typically a medium to long term investment.
For taxation purposes any growth within a bond is treated by the HMRC as 'income' rather than as an increase in the capital value. Internally (i.e. at the level where the money is invested by the insurance company) any gains made are taxed at the basic rate of income tax.
The bond holder is able to make annual withdrawals from the policy of up to 5% of the invested amount without any immediate tax to pay. They are actually assessed for tax when the policy matures or is encashed which is often 20 years after it is taken out if held to maturity.