Tax-friendly Uk Select Investment Plan

In_for_a_penny

My wife recently received some information, totally unplanned or requested, through the post from a company called Scottish Friendly.

www.scottishfriendly.co.uk

It concerns a 10 year savings plan (endowment) which offers the facility of her being able to save up to£25 per month (tax-free) for 10 years. This is in addition to the new standard allowance of £3600 in an ISA.


My wife’s anxious to start a savings plan like this. Obviously taking further advantage of a tax-free situation. Does anyone know this Company? If so, is it reputable? And therefore, would it be a good opportunity to save that ‘bit’ more, tax-free?

Thanks.

Aegis

It's possible to save it tax free, but considering the fact that it's a UK index tracker with only 10 years to grow, you're probably not actually going to be looking at enough gain to trigger a capital gains tax event at the end (you'd need over £9500 in growth by then, probably over £10000) unless you make a lot of other sales in the year.

I don't think this is actually an endowment because there's no assured amount, nor is it tax free on maturity regardless of premium amount (I believe a 10 year endowment would have counted as a qualifying policy and would therefore have been free of taxes).

I think you'd be better off avoiding this product and putting your money into a stocks and shares ISA instead (I'm assuming you've gone into the cash element only). It doesn't tie you in to to a fixed term, so if the markets are down when you come to the 10 year mark you can keep hold of your investments. It also allows you to change your strategy whenever you like, and to diversify as much as you want as time goes on.

It also allows you to invest more each year tax free (£3600 if you have maximised your cash allowance already, up to £7200 next year if you choose not to use your cash allowance).

dunstonh

These friendly society plans are endowments basically with a slightly better tax position. However, they are still charged like endomwents and this plan, whilst better than most because it doesnt use a with profits fund, has a reduction in yield of 2.3%. Go execution only on a unit trust at £25pm and you would be looking at a reduction in yield closer to 1.6% A difference of 0.7%.

With both funds on offer being low on income distributions within the fund the tax saving on the [strike]endowment[/strike] friendly society plan is not enough to make up for the difference in charges. The tax saving would be about 0.2% a year meaning you are worse off by about 0.5% a year using one of these over a unit trust.

It would probably be worse than that in reality as the tracker fund it follows has a lower reduction in yield so you are probably paying around 1.7% a year more in charges. I havent looked to get a real figure but thats a conservative estimate.