Tax Tips: New Year resolutions for the tax avoider

As a new Budget and the end of the tax year approach, Tony Lyons does some financial stock taking

It is at this time of year that we should all ensure we have made the best use the tax system for investing our hard-earned savings.

With the financial year ending on 5 April, we should make full use of whatever tax benefits there are when it comes to putting our money away, whether saving for a rainy day, a comfortable retirement, or whatever.

This year it's more important than ever. On Tuesday, Gordon Brown, the Chancellor of the Exchequer, will announce his new Budget. And it promises to be a wide-sweeping, tax reforming Budget.

We already know that personal equity plans (PEPs) and tax-exempt special savings accounts (Tessas) have just one more year and what's left of this tax year to run. After this, they will be replaced with Individual Savings Accounts (ISAs).

But, as is usual at this time of year, rumours are swilling around about many other changes that may be announced. These include measures to limit tax avoidance even further, including culling the tax benefits of offshore investment.

Inheritance tax may also be changed. Another rumour is that pension investment made by individuals may only attract basic-rate income-tax relief. This latter piece of tittle tattle, however, sits badly with the Government's plans to issue a green paper later this year which will unveil its thoughts on future pensions provision, how it will encourage us to do more to save for our retirement, and its ideas on the creation of the stakeholder pension.

So now is a good time to get your financial house in order. This does not mean you should suddenly switch your savings because of rumours, rather it is prudent housekeeping.

For example, PEPs have been an outstanding success with somewhere in the region of pounds 50bn invested in them since they were first introduced in 1987. It makes sense to use your full allowance in what is left of this tax year and for 1998/99.

Even if you think share prices are too high in the stock market and could be heading for a fall, there are various schemes available from a number of different managers that will guarantee at least your original capital investment.

But a word of caution. Never invest in anything just because it offers tax savings. You should only put your money into an investment because it suits your purposes. Don't take risks you cannot afford. Make sure that whatever you look at meets your investment aims. After all, the higher the risk, the more chance there is that you could end up losing money.

Whether you are looking to put away a lump sum or a regular amount each month, whether you want to invest for the long term - five years or more - or the short term, there are various schemes on offer. In order to guide you through the sifting process, this survey looks at some of the currently available means of tax-free investment.

When looking to tax-free investment, here are 10 rules to remember:

n Never invest more than you can afford.

n Don't invest just because of the tax benefits.

n Make sure you understand, and like, what you are investing in.

n Always compare charges.

n Look at past performance of various competitors - it will not forecast the future, but it may be the only guide you'll have.

n Some schemes are complex, so get financial advice if you feel you need it.

n If seeking advice, qualified independent financial advisers are best.

n Some schemes, such as personal pensions, can be very inflexible, make sure you understand any penalties such as what happens if you stop payments.

n Make sure that you are happy to lock up your savings for what could be a long time

n Don't rush into an investment just because you fear the Budget could make changes.