Tax-free investments are designed to encourage proactive long-term saving. The value proposition is simple – invest in ring-fenced funds and you’ll pay no taxes on your capital gains, dividends or interest earned.
With tax rates of 18% on capital gains, 20% on dividends and 15% on interest earned, it’s easy to see why the tax savings are so appealing.
In addition, you have a wide choice of saving and investment options available to you, from simple saving accounts to unit trusts. This variety means that you can use your savings for different goals such as your children’s education, a deposit on a home or as a very long-term retirement investment for your kids.
As with any good deal, there are terms and conditions that you need to be aware of, as some of these could lead to penalties or losing out on the full impact that tax-free accounts offer.
Firstly, you qualify for the tax benefits only if you invest in a registered tax-free fund.
you shouldn’t simply withdraw the funds and deposit them into another tax-free investment
Know your tax-free options
The tax-free investment is a basic option if you want to make smaller monthly contributions by stop order or debit order. The minimum deposit amount is relatively low, making a tax-free savings the ideal stepping-stone to saving regularly.
Tax-free unit trusts are the ideal way to invest for the medium to long term. Unit trusts pool the contributions from fund members, and are a popular, low-friction way to invest in the market. Once you have retired, a tax-free fixed-deposit investment can be used to stay ahead of inflation without putting your capital at risk.