Investments And Non-taxpayers

If you're a non-taxpayer, because you have unused outgoings or allowances, you should normally avoid certain investments where income is paid with tax already deducted and the tax can't be reclaimed. This is the case with most deposit-type investments such as bank and building society accounts, and investment-type life insurance schemes. But always make sure that the before-tax return you can get elsewhere is higher than the taxed return you're giving up. Investments paying income with tax deducted but where you can reclaim the tax may not be very convenient and you may have to wait some time before getting the tax back.

TIP - Most children will want to have some savings at least in a bank or building society account giving instant access. However, interest from these accounts is paid with tax deducted which can't be reclaimed, so for children, who have a single person's tax allowance just like any adult, these usually don't offer the best returns. Children can make use of their tax allowance by investing any money not needed in the short term in a National Savings Investment Account, where interest is paid without tax deducted. The snag with this account is that one month's notice of withdrawal is required. But watch out whatever account they choose income from money that a parent gives to their child is taxed as the parent's income, so encourage generous relatives to give money to the children for birthdays, Christmas, and so on.

Different investments

Below is a summary of the main types of investment available with some pointers on what to watch out for. In the space available it's possible to give no more than an outline of each. (For a complete review, see Which? Way to Save and Invest).


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Investments And Tax

Your tax position

Investments and tax The return you get can be income, capital growth or a combination of both. What's important to you is the after tax return that you'll get. The return from some investments is tax-free, but with most the income is subject to income tax and the capital gains are subject to capital gains tax. Whether tax is in fact payable will depend on whether you've used your available allowances and other deductions. So your personal tax position will often make one type of investment more suitable for you than another.

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