Guide to Finance


eg: UK or Brides UK or Classical Art or Buy Music or Spirituality

Business & Money

Technology

Women

Health

Education

Family

Travel

Cars

Entertainment

Tax Free Savings Accounts

View:

The amount of interest you can earn on your savings these days is barely enough to keep up with inflation, and in some cases you're effectively paying your bank to store your money in your account for you, as the value of your deposit falls in real terms. This situation is even worse when you consider that tax needs to be paid on the already meagre amount you're earning off your investment - which for many in the UK who have sufficient funds to invest is a full 40% of the return.

With this in mind, does a long term investment earning good returns completely free of tax sound attractive? UK investors have precisely this option in the form of the Individual Savings Account, or ISA as it's more commonly referred to.

Under this government backed scheme, savers can deposit up to £7,200 a year into an account from a variety of providers, and pay no income tax or capital gains tax on the returns.

Up to £3,600 of deposits a year can be in the form of cash deposits which earn interest in much the same way as a normal savings account, while the next £3,600 up to your annual limit must be invested in stocks and shares (managed by your account provider).

Alternatively, the full amount of your yearly deposit allowance can be invested in stocks and shares. Which combination of cash or stocks and shares you choose depends largely on your attitude to risk - stocks and shares will generally perform better over the medium to long term, but as we're seeing at the moment markets can go down as well as up, and so therefore can your investment. The advice of an independent financial professional is always a good idea if you're unsure which of the options is best for you.

Although the amounts involved might not seem to be very significant considering the annual investment limit, over a period of years your investment can grow into a considerable sum if your full allowance is used - and it will be quietly sitting there earning a tax-free return on the cumulative amount deposited along with compounding the interest paid back into the account. It is therefore a great way to save long term, for retirement for example - and who doesn't like the phrase 'tax-free'?

Tax Free Savings Accounts

Child Trust Funds can be a mine field to navigate though. Here are ten simple

things to know about Child Trust Funds before taking one out.

1. While similar to ISAs, child trust funds are designed to help children in the long term. They are a government backed, tax free saving scheme.

2. Parents only receive their child's CTF voucher once he or she has been registered for Child Benefit. As such, a birth certificate is required. Remember, Child Benefit is available to every child, regardless of parental income.

3. Once you have the voucher, time is money. It makes sense to begin taking advantage if a Child Trust Fund as early as possible. So get reading.

4. You can find full details about the scheme at the government's Child Trust Fund site here http://www.childtrustfund.gov.uk/

5. Children gain full access to their CTF when they turn 18.

6. The pre-budget report indicated that you'll be able to roll a CTF into an ISA, once it matures, meaning that your child's money could benefit from the tax free status for many years.

7. Child trust funds and usually be transferred between providers at will and at no incurred cost.

8. If you don't invest the voucher within 12 months, the government will open a stakeholder account for you.

9. Child trust funds can be contributed by family members to the sum of ?1200 per annum.

10. If your oldest child is eligible for a CTF, and you were to pay just his/her Child Benefit into the account, it would equal a contribution of around ?907 to the account per year, or ?75 per month. Subsequent children could contribute ?608, or around ?50 per month.

Another important point to remember is that money invested in a CTF is not subject to the ?100 rule. Normally, if a child earns any interest over this sum on money given to him or her by a parent, the parent is taxed on it at their highest rate. This does not apply to the CTF, meaning that your child could save the maximum ?1,200 per year, whilst saving elsewhere, too.

Related Articles
Author
Most Popular

•	Health Savings Accounts Tax, by Wiley Long
•	Income Tax On Savings, by Alaric Albin
•	Savings Bonds Tax Free, by Tax Savers
•	Tax Deferred Savings Plan, by Mike Selvon
•	Tax Free Municipal Funds, by Johnkrol

About Author

Both Nicholas Hunt & Katie Brown are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.

Nicholas Hunt has sinced written about articles on various topics from Mortgage Insurance, Finances and Banking. Nicholas writes for Your Banking Guide where you read more about options, as well as. Nicholas Hunt's top article generates over 550000 views. to your Favourites.

Katie Brown has sinced written about articles on various topics from Mortgage Insurance, Auto Insurance and Finances. Learn more about how a can help your children from ASDA Finance. Katie Brown's top article generates over 27100 views. to your Favourites.

Debt And Credit Solutions
You will still have debt, but it will be much more manageable. Remember that this can be a very important step towards fixing your financial situation