An easy way to do this is with an ISA account.

Cash ISA

Up to £5,100 can be invested in a cash ISA, which is essentially a tax-free savings account. The amount you save versus a regular savings account will depend on the amount of cash you put into your ISA and the rate of tax you pay. As an illustration, if you’re a basic-rate tax payer and save £100 a month in an account offering 3% rate of interest, over 10 years  you’ll save  £13,979 and after 20 £32,766. Now, if you had to pay tax on those savings, you’d lose over £400 in 10 years and £2000 after 20! For long term savings, ISAs clearly save you a small fortune.

Stocks and Shares ISA

If you’re looking to get a little more from your investments (with subsequently more risk) you can still do so in a tax-efficient manner with a stocks and shares ISA.

Stocks and shares ISAs work in a different way to cash ISAs. Firstly they’ll need to be set-up and managed, just like any other investment vehicle.  Also, not all your income will be tax-free- indeed, most investments will only be less taxable if you’re already a higher rate tax payer. To benefit as a basic rate payer, you need to put money into interest-bearing investments, such as corporate bonds.

For those who would normally pay capital gains tax, the benefits of a stocks and shares ISA can be significant. Given that you could hope for returns of 7% from good investments, a £100 a month investment could be worth over £50,000 after 20 years- all completely tax free! Of course this is only an illustration – investments can go down as well as up – but they are certainly worth considering if you were planning to invest anyway.

Despite being tax-free, ISAs are not suitable for everyone.  For example, they have strict limits about how much money you can invest over the course of the tax year – regardless of how much you take out. If you put £5,000 into an account and take it out again, you can’t then re-invest it in the same tax year as this will push you over the limit. If you like to move your money around a lot, you would be much better off with normal saving accounts or investments where you can withdraw money without penalties.

With public finances in such a bad state, most economists believe that taxes will rise after the next election, so there’s never been a better time to make sure your investments and savings are operating in a tax-efficient manner. Make sure you speak to your bank or IFA for advice about the best deals for you.

Fidelity is the world’s largest mutual fund company. In the UK they provide a range of savings and investment solutions for both individuals and corporations. From ISAs to pensions advice, visit www.fidelity.co.uk for all your investment needs


Article from articlesbase.com

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