How is Joan's automatic income payment from a unit-linked bond taxed?

When considering how Joan's automatic income payment from a unit-linked bond is taxed, it's essential to focus on the nature of investment bonds in the context of the tax landscape. Unit-linked bonds often have specific provisions around taxation, especially concerning gains.

In this situation, the exit tax is a crucial aspect because it addresses the taxation of the gains accrued within the bond. When an investor cashes in or exits a unit-linked bond, any gains realized are subject to exit tax. This allows the investor to benefit from the growth in their investment while ensuring that taxes are appropriately applied only to the gains rather than the entire value. Essentially, it avoids double taxation on income that has already been subjected to taxation at the time of the initial investment.

This understanding leads to the conclusion that option B is the appropriate choice because it correctly identifies that the tax applied is an exit tax deducted from any gain, reflecting good practice in the structuring of tax outcomes for investment bonds.