Tax free Investing

from thisismoney.co.uk

Tax-free investing

There are a number of ways investors can shield their money from the taxman. Our guide explains the various options starting with the most popular...

Isas

Individual Savings Accounts are the most common way of keeping your investments away from the taxman. They were introduced in April 1999 to replace Personal Equity Plans (PEPs) and can be used to protect unit trusts, bonds, investment trusts and Oeics. Peps' tax-free status still applies for existing investments.

Each year, you can invest £7,000 in a stocks and shares 'maxi' Isa. The alternative, if you want to hold some money in a savings account tax-free, is to put up to £3,000 in a cash Isa or 'mini' Isa. You can then invest £3,000 in another stock and shares 'mini' Isa. (You can also invest another £1,000 in life insurance, although very few people have used this option). So you can hold two Mini Isas - one with funds and one as a cash accounts - or one maxi.

However, the limits are due to fall. From April 2006, the cash mini Isa limit will fall from £3,000 to £1,000. The mini stocks and shares Isa will rise from £3,000 to £4,000 (this is to cater for the scraping of the life insurance Isa element for new investors) but the overall maxi Isa allowance will fall from £7,000 to £5,000.

Any investment wrapped in an Isa is exempt from capital gains tax. With regards to income tax, the benefits became more complex in April 2004.

Anyone investing in shares, including share-based funds, th