q A number of National Savings products are tax-free - and good value, too. Children under the age of 16 can have up to pounds 1,000 in Children's Bonds, paying 6.75 per cent fixed over five years tax-free. National Savings Certificates - fixed rate and index-linked - are also five year deals, paying 5.35 per cent or inflation plus 2.5 per cent respectively tax-free.
National Savings can be especially useful for pensioners whose income is high enough to lose them age allowance. Tax-free National Savings do not count in the "total income" figure used in the age allowance calculation. It can be especially worthwhile to switch some of your taxable investments into National Savings. Inland Revenue leaflet IR 121 Income Tax and Pensioners explains some of this. Your tax office can send you a copy.
You can pick up a National Savings Investment Guide at a Post Office, or by ringing 0645 645000. Ask for a separate booklet on any National Savings product you are interested in. Recorded rate information is to be found on 0171 605 9483 around the clock. To compare National Savings rates with rates available elsewhere, see this newspaper's Best Saving Rates table (page 22) or try Moneyfacts magazine - a complimentary copy can be obtained by phoning 01692 500677.
q Non-taxpayers may also find taxable National Savings products useful, because interest is paid gross - so there is nothing deducted and nothing to claim back. Non-taxpayers can also now get bank and building society interest paid gross, too (if they complete form R85). You will find R85 inside leaflet IR110, A Guide for People with Savings, from your tax office. If, on the other hand, you have received bank or building society interest net, or you have received dividends and there's tax to reclaim, you need to complete form R40 - also inside leaflet IR110.
q Tessas (Tax Exempt Special Savings Accounts) are being heavily advertised at the moment - because banks and building societies are trying to get first-generation Tessa savers to roll over their maturing money. With tax-free rates of up to 8 per cent a year, they should be prominent among anyone's low-risk tax-free investing strategy. Interest is tax-free provided you do not touch the capital (up to pounds 9,000 in total) for the five-year term. Inland Revenue leaflet IR 114 explains the basics. A free guide from independent financial adviser Chase de Vere explains the options for maturing Tessas and looks at the choice of new accounts available. (Call 0800 526091 for Tessas, The Next Step.) Financial adviser Johnson Fry also has a useful free guide giving the rates, terms and conditions of the new Tessas (call 0171 451 1000).
q PEPs (Personal Equity Plans) are more risky. Unlike Tessas, they are a stock-market investment. You can lose money on them, although over five years they should outperform Tessas. However do not take out a PEP purely for the tax breaks, but only if you are thinking of some stock-market investments in any case. Profits are free of income tax and capital gains tax.
For details of PEP charges and what is available, try Chase de Vere's Pep Guide. The latest edition was published this month. It also gives information on how existing PEPs have done. The guide costs pounds 12.95, refundable if you subsequently buy a PEP through it. Call 0800 526092.
q Other options to explore if you want to invest in equities are workplace share schemes - called Saye share option schemes and profit-sharing schemes. Both offer tax breaks. Several Inland Revenue leaflets could be helpful - ask your tax office.
q Ten-year tax-free savings plans are offered by friendly societies - savings institutions owned, like building societies, by their customers. You can invest a maximum of pounds 25 per month or pounds 270 per year, and the proceeds will be tax-free. Returns are normally linked to the stock market, but the plans carry high charges compared with PEPs. The Association of Friendly Societies (0171 606 1881) can give you names and phone numbers of societies offering the plans.
q Savings and investments do not have to carry a tax-free label to be tax-free in practice. Everyone has an annual tax-free allowance of pounds 6,000 for capital gains made on investments. Then there are pensions - which carry the most investment tax breaks of all - which will be covered in a future part of this series.Reuse content