| If you want to save money free of tax, there are a number of options. They are: | |
| Cash ISAs | |
The Government allows up to £3,000 of a UK resident’s annual tax-free ISA allowance to be invested in a mini cash ISA. These are available through most banks and building societies. You may also invest up to £3,000 of your savings in the cash element of a maxi ISA available from many fund managers, putting the rest into equities (and some into insurance) if you wish. Mini vs Maxi: the advantage of mini cash ISAs is that you will find a better rate than might be available through a maxi fund. The disadvantage is that mini ISAs reduce the overall amount you can then shelter in equities. And if you don’t make full use of your ISA allowance, you are investing even less. To find out more, go to our ISAs and Investment section. | |
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National Savings National Savings is generally considered the safest place savers can find for their cash, as the Government can pretty much guarantee to honour its debts. However, rates don’t compete with those on offer from most other savings institutions. National Savings operates a range of tax-free accounts: | |
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| For more information, go to the National Savings website.Tessas and Tessa-only ISAs If you took out one of these tax-free savings schemes - available up to their abolition in 1999, you can still make payments into them until they mature. Keep an eye on the interest rates you are earning on these accounts. If you are not happy with the rate you are earning, find a Tessa provider who will pay you more and transfer your cash to another provider - although you may be charged a penalty for switching. When your Tessa matures, you may invest the entire capital amount, up to the £9,000 Tessa investment limit (but not the interest), into a Tessa-only cash ISA, the tax-free wrapper. This is in addition to your annual ISA allowance of £7,000. | |
| Tax free savings If you are not a taxpayer, there is a simple way to increase your returns: make sure you are registered to get interest paid gross (before tax is taken away). You can get a form, called R85 to qualify for gross payments from your local bank or building society branch. | |
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Finally Do you really need to avoid tax on your savings? You may be tempted to stash your money into an ISA because "you don’t pay tax". This is true, but sometimes the tax bill is not always worth bothering about. A lower-rate taxpayer who has the full £3,000 in a cash ISA paying 5 per cent gross would earn £150 interest in a year, on which the tax saved is about £30. If you are prepared to accept some risk, it may pay to keep your savings in an ordinary deposit account and use the ISA allowance to invest in equities. These have historically delivered better rates of return and could require a tax shelter more urgently. |
