A quick guide to the Tax Exempt Savings Plan

Are you looking for a way to maximise your tax-free savings? Fortunately, with a friendly society like Sheffield Mutual, you can gain exclusive access to a Tax Exempt Savings Plan (TESP). This policy allows you to save tax-free in addition to your ISA or Junior ISA allowances, with a guaranteed tax-free amount on maturity and the potential for additional bonuses. 

This plan could be a fantastic way to make your money work harder. If you want to learn more about this unique plan and how it could benefit you, dive into this helpful introductory guide.

The Tax Exempt Savings Plan: What You Need to Know

This handy guide will give you a basic introduction to our Tax Exempt Savings Plan (TESP), covering key questions and areas such as:

• What is a Tax Exempt Savings Plan?

• How Much Can I Save in a Tax Exempt Savings Plan?

• Who Can Have a Tax Exempt Savings Plan?

• The Sheffield Mutual Tax Exempt Savings Plan

• Potential Risks to Be Aware of 

Before opening a TESP, please read our dedicated product brochure and Key Information Document. These resources cover all the essential terms and conditions you need to make an informed decision.

What is a Tax Exempt Savings Plan?

A Tax Exempt Savings Plan (or TESP for short) allows you to take advantage of tax-free savings on top of your annual ISA (£20,000 per tax year) or Junior ISA allowance (£9,000 per tax year). By committing to regular contributions over a set term, you can build up a tax-free lump sum for yourself or your loved ones. This plan could be the perfect way to top up your retirement savings or set aside a deposit towards your dream home. 

This policy is exclusively available through Friendly Societies like Sheffield Mutual.

How Much Can I Save in the Tax Exempt Savings Plan?

Under current HMRC legislation, the maximum amount you can save tax-free into a TESP is £25 a month or £270 annually (this includes any Tax Exempt Savings Plan held with another friendly society). If you opt for the minimum term of 10 years, this will help you save £2700, if contributing £270 annually, tax-free sum by the time your plan matures. Providing the plan runs to its planned maturity date with all premiums paid, we will guarantee a minimum final amount for more than you have paid in. In this case, £270 annually for 10 years would give a sum assured of £2,737.

If you want to save more than this amount, a Regular Savings Plan, Investment ISA or Sustainable ISA could be an excellent option.

Who Can Have a Tax Exempt Savings Plan?

Anyone of any age can have a TESP and choose from​​ several plans. If you are between 11 and 55 on your next birthday, you can also choose a life cover option. 

We even offer a Children’s Tax Exempt Savings Plan (TESP), which can be a great way to build up a nest egg for the little ones in your life. You could even time your TESP to mature with a specific date or milestone, such as their 21st birthday. Unlike Junior ISAs, which can only be opened by a parent or guardian, anyone can open a TESP for a child. This feature gives grandparents, godparents, or even family friends a tax-free opportunity to save for children they care about. 

Remember that your contributions must remain within the maximum £25 per month or £270 annually. This amount includes any TESP held with another friendly society.

The Sheffield Mutual Tax Exempt Savings Plan:

If you like the sound of this policy and are keen to start making the most of your tax-free savings, you may be wondering where to open your plan. Here is a brief overview of the Sheffield Mutual Tax Exempt Savings Plan (TESP) and what it can offer you: 

• A medium to long-term investment – you can select your plan's term from 10 years up to 25 years. 

• You can start by contributing from as little as £5 per month or £50 annually.

• Provided you maintain your payments, you will receive a guaranteed tax-free amount on maturity, with the potential for additional bonuses.

• Our current bonus rate is paid on the sum assured. For example... 

£25 per month for 10 years is £3,005 sum assured

If the current bonus rate was 2.50% we would pay 2.50% on £3,005 = £75.12 x 10 (assuming the rate stays the same) = £751.25 over the term of the policy.

Please Note: Annual Bonuses are NOT guaranteed and past performance is not an indication of future performance. Please review our information document before committing to a savings strategy.

• Your money is invested in our managed with-profits fund, which aims to offer higher potential returns than a bank or building society.

• We use ‘smoothing’ over the life of the policy (retaining some of the investment return in good years to help maintain bonus rates in less positive years).

• You cannot make withdrawals, but you can surrender your policy. However, the surrender value may be less than the amount you have paid, and you may be liable for additional tax on any investment gain.
  
  

Our TESP In Practice:

When you have decided how much you’d like to save and for how long (between 10-25 years), the Society will give you a guaranteed final amount (Sum Assured) for more than you will pay in. We will then aim to add bonuses to this final amount (not the amount invested). This process differs from a regular bank account, where you would only earn interest on the amount invested at the time. Once bonuses are applied, they cannot be taken away. However, the guaranteed amount only applies at maturity – if you cash in early, you may get back less than you paid in.

If you opt for the TESP with life cover, you’ll receive the Sum Assured plus any attaching bonuses on death, whereas the standard policy will pay out premiums paid plus interest up to the date of death. Please note that the Sum Assured for the with-life policy will depend on the amount, term, and age at the start of the plan.  A short medical questionnaire will also be required.

Potential Risks to Be Aware Of:

As with all investments, capital is at risk. You should also consider the following factors associated with the TESP:

• You cannot make withdrawals, but you can surrender your policy. Please note that the surrender value may be less than the amount you have paid, and you may be liable for additional tax on any investment gain.

• Interim and final bonuses are not guaranteed and may go up or down before being declared.

• Tax treatment depends on individual circumstances and may be subject to change in the future.
  
  

Make the Most of Your Tax-Free Savings Today

Has the TESP caught your eye? Consider opening a plan with Sheffield Mutual to boost your tax-free savings for yourself or a loved one. Read our product brochure and Key Information Document to ensure you have all the vital information, then apply easily online, via the post, or over the phone.

For more details or clarification about our Tax Exempt Savings Plan, please don’t hesitate to contact our team. We can’t offer financial advice or make recommendations, but we can provide information about this policy and the Society. Please note that all information in this article is correct at the time of publication. 

This blog provides generic information and the writer's opinions and should not be relied upon for investment decisions. Sheffield Mutual has provided no advice. If you doubt whether a savings or investment plan suits you, consider contacting a financial adviser for advice. If you do not have a financial adviser, you can get details of local financial advisers by visiting www.unbiased.co.uk or www.vouchedfor.co.uk. Advisers may charge for providing such advice and should confirm any costs beforehand.