How to earn yourself a tax holiday

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The Independent Online
Tax breaks come in several forms, as our flow-chart shows. Investors can choose a range of investments that pay interest gross (ie before tax) and leave you to settle any liability later. Anyone not liable for tax, including non-working wives, can also apply to receive interest gross on bank and building society accounts.

Tax-exempt Tessas, National Savings Certificates and Children's Bonus bonds are both risk-free and tax-free for anyone who can wait five years. Anyone who wants shorter-term risk-free tax-free investments could do worse than buy Index-Linked Savings Certificates which have the added virtue of being inflation-proof as well.

Investors who want the highest rates of tax-free income and/or the chance of tax-free capital gains will have to accept an element of risk of losing capital. For most investors Corporate Bond PEPs and PEPs designed to produce high income may be more useful than investments aimed at making capital gains.

There are limits on how much you can invest in totally tax-free shelters, but big investors can also reduce tax liabilities by investing in pension plans, traded endowment policies, zero coupon bonds and low-coupon gilts.


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