Savings I can't spend!

colsten

planteria, would you be able to explain what a Child Tax Exempt Savings Plan actually is, and how one would get one of them, please? What are the commitments, what are the benefits, what are the restrictions, what are the advantages over and above other savings and investments instruments? Which IFA would recommend a Tax Exempt Savings Plan? Why would you want one of those instead of a JISA? Thanks.

xylophone

Discussed here http://www.telegraph.co.uk/finance/personalfinance/investing/10095587/Isa-allowance-used-up-Heres-another-way-to-save-tax-free.html

jimjames

planteria wrote: »

£25/month is perfect for a Child Tax Exempt Savings Plan. i would open one of those:)

You would invest but I think it's very misleading to recommend without any mention of the downside with flexibility and costs plus the tax free headline is irrelevant to most people. Even the article linked above suggests they are only suitable once you've used your ISA allowance not before.

colsten

xylophone wrote: »

Discussed here http://www.telegraph.co.uk/finance/personalfinance/investing/10095587/Isa-allowance-used-up-Heres-another-way-to-save-tax-free.html

Great link, xylophone, thanks.

planteria

yes, good link xylophone

and yes colsten. i utilise my full ISA allowance and use my £25/m TESP allowance.

they can be set up for children...our daughter has one.

the approach to take is to define the length of time that you want to invest for and commit to that. the friendly society will calculate a Sum Assured, based upon the full amount you will invest over that period (with the society i have in mind the sum assured would be higher than the amount to be invested). each year a bonus should then be paid based upon that Sum Assured, ie. not the value invested so far, but the value that will be invested over the whole term, thereby enabling the investor to make a return on money not yet invested.

the Child TESP can be controlled by the person contributing to it, but with the child as the named beneficiary.

as long as the terms are adhered to the investor will not lose money. there is, of course, inflation to consider, and the opportunity cost that the money could be invested elsewhere. but i am happy to have a small, steady, guaranteed investment alongside riskier ones. for folks investing for a child, i think a small, guaranteed, tax-free investment works well.

jimjames

planteria wrote: »

as long as the terms are adhered to the investor will not lose money. there is, of course, inflation to consider, and the opportunity cost that the money could be invested elsewhere. but i am happy to have a small, steady, guaranteed investment alongside riskier ones. for folks investing for a child, i think a small, guaranteed, tax-free investment works well.

Unfortunately, as usual, you fail to spell out the downsides of tax exempt savings plans.

1) You are committed to an amount for a fixed period of time, 10 or 15 years.

You cannot change the amount or stop payments for 10/15 years. How many people can say that their situation will be exactly the same for 15 years?

2) What if you want to increase payments or pay in an extra lump sum? You can't do that with a TESP

3) Charges are excessively high compared to alternatives especially if you cancel early on.

4) Tax exempt is irrelevant for most people. If you're a basic rate taxpayer you have no additional tax to pay on any investments even those outside an ISA.

So for most people either a JISA or an investment trust savings plan would be far better options that have none of the negatives above.

I still cannot understand who would benefit from these plans that isn't better off in a JISA. The only possible example I can think is someone who can only pay £10 per month, any more than that Investment trust or JISA schemes would appear a better option.

What have I missed?

planteria

you can change/stop payments during the fixed period of time. but you would lose the sum assured that was agreed at the outset..which is fair.

the fact that the contribution levels are limited to £25/month is a level that people who invest in a TESP can usually find. in the bigger scheme of things, it is not a lot of money.

no, a lump sum is not suitable for a TESP. but that's fine: someone with a lump sum can invest it elsewhere.

if the Tax Exempt status does not benefit some people, then that is fine. the point is that they can invest knowing that the investment is tax exempt, both within the fund, and when it pays out.

and i'm not an IFA. a TESP is suitable for people that consider the information and decide that it is suitable for them. it is as simple as that.

my own thought is that they sit nicely alongside other investments: being low-risk, steady, with a guarantee to return the sum assured (ie. grow your money) as long as the investor adheres to their plan. and also that they make a neat investment for a child (that can be controlled by the investor)..perhaps alongside Cash or a Junior ISA.

LianeB

Wow, thanks for all your replies!

After a little bit of research I have an appointment with Halifax to open one of their JISA, at 4%.
I'm starting with £25 p/mth but this may change as and when circumstances change so this offers me the flexibility to do that with the assurance of not being able to spend this money that I want to gift to my son.

Once again, thanks for all your help!