What Is a Tax Exempt Savings Plan?

When it comes to saving money, knowing the various ways you can make your money work harder can help you save with confidence. While many savers will be used to ISAs or regular savings accounts, many are unaware that, with a friendly society, you can access a unique Tax Exempt Savings Plan.

With a Tax Exempt Savings Plan, you can find new ways to save money tax-free, alongside your annual ISA allowance, making it an ideal choice for savers searching for medium or long-term savings options. 

Throughout this guide, we will break down exactly what a Tax Exempt Savings Plan is, how it works, how it can benefit your savings, and whether it can be the right choice for you and your financial goals. 

What Is A Tax Exempt Savings Plan? 

A Tax Exempt Savings Plan (TESP) is a long-term solution that allows you to build a tax-free lump sum over a fixed period. Unlike many other savings plans, access to a tax exempt plan is uniquely available through a friendly society like ours. 

One of the main advantages of a tax-free savings plan is that it can sit alongside an existing ISA allowance, rather than replacing it. This means you can continue to save and contribute to your ISA while also saving into your TESP to maximise your tax-free savings. 

With a friendly society benefit like a Tax Exempt Savings Plan, savers can start plans from as little as £5 a month over a 10-25-year period to ensure their savings goals are met and to create a healthy long-term financial, tax-free safety net. However, it is important to note that tax treatment depends on individual circumstances and may be subject to change in the future. 

How Does A Tax Exempt Savings Plan Work? 

A Tax Exempt Savings Plan is designed to support long-term savings goals through regular contributions over a fixed term. For example: 

• Begin your savings plan by opening an account. 
• Choose how much you would like to save over a fixed amount of time, between 10 and 25 years. This amount can be anything between £5 and £25 per month, or £50 and £270 per annum. 
• At the end of your fixed term, you will receive a guaranteed lump sum, provided all premiums have been paid, along with any bonuses added during the policy period. It is worth noting, however, that bonuses are not guaranteed. 

Tax Exempt Savings Plans are designed for savers wishing to save towards future milestones, rather than for short-term spending, and are aimed at guaranteeing a long-term sum. 

How Much Can Be Saved With A Tax Exempt Savings Plan? 

Tax Exempt Savings Plans have a set contribution limit set by legislation. Currently, the maximum amount you can save is £25 a month, or £270 a year, and applies across all TESPs you may hold. 

While the contribution limits are relatively modest, they can be applied alongside a wider savings strategy, such as an ISA. 

How Are They Tax Exempt? 

To be tax exempt, all tax benefits stem from the plan’s status as a qualifying life policy, which allows all savings to grow without income tax or capital gains tax under current legislation, provided the policy meets all qualifying conditions. 

By doing so, you can be free to build your savings knowing that your maturity value will not be reduced. 

What Are The Benefits Of A Tax Exempt Savings Plan? 

There are many benefits to choosing a Tax Exempt Savings Plan, including: 

1. Tax-free savings, alongside an existing ISA:

One of the biggest benefits of a tax-free savings plan is that you can save in addition to your existing ISA allowance. 

1. Encouragement for regular savings: 

TESPs are an ideal choice for those who want to start a healthy savings habit to make it easier to work towards a long-term financial goal. Contributions can be made either monthly or annually to assist you on your journey. 

1. Guaranteed minimum maturity values:

With a TESP, provided you keep the policy until maturity and maintain all contributions, you will receive a guaranteed minimum amount at the end of the term, with the potential for bonuses added, calculated on the “sum assured”, rather than contributions to date. 

With a combination of all three, with certainty of the sum assured and the growth potential through bonuses, a Tax Exempt Savings Plan can appeal to all savers looking for reassurance with their money. 

Who Should Consider A Tax Exempt Savings Plan? 

A Tax Exempt Savings Plan is an excellent investment opportunity for a wide range of savers, especially those who want to build a tax-free lump sum over time or those who have exhausted their existing ISA allowance to use as an additional savings plan. 

You may wish to consider a TESP if you: 

• Are looking for a simple way to save over the long term. 
• Already have an ISA and would like another tax-exempt way to save. 
• Additionally, it is also suitable for anyone who has used up their ISA allowance and wants to save additional money tax-free. 
• Prefer to make small but manageable contributions. 
• Wish to benefit from potential bonuses. 
• Are saving towards a future milestone.

Regular savings can very quickly add up into useful lump sums over time. They can be used to build an emergency fund, pay for a wedding, fund university or a child’s education, assist with home improvements and renovations, supplement a retirement income, or leave a financial gift for family members. 

As savings contributions start at just £5 a month, it is an incredibly accessible way to begin a savings journey or to diversify an existing savings plan. 

Frequently Asked Questions: 

Can I withdraw money early from a TESP? 

Tax Exempt Savings Plans are designed for long-term savings. While it is possible to surrender early, you may receive less than you have paid in during the earlier years of the policy. 

How much can I save? 

Under the current legislation, savings can be made up to £25 per month, or £270 per year over all TESP’s you hold. Over 25 years, with £25 per month, you could be saving almost £10,000 for you, your family and your future. 

Are returns guaranteed? 

We guarantee a return of the minimum maturity value, provided the plan is maintained until the end of its term, and all payments are made.

Why Choose A Tax Exempt Savings Plan With A Friendly Society? 

Tax Exempt Savings Plans are uniquely created and only available through a friendly society. 

Unlike a standard shareholder-owned company, a friendly society builds its policies specifically for its members. By having a member-focused approach to plans, you can be assured of long-term financial guarantees, customer service support, and responsible ways to invest for your future. 

If you are looking for a simple and reliable way to build your long-term savings, a TESP could be the ideal solution for your financial needs. While contributions are lower than a standard ISA plan, tax exempt savings can be used alongside your ISA allowance, giving you a unique and valuable opportunity to grow your money with confidence. 

Whether you are saving for your family, planning for a major life event such as retirement or an educational fund, or simply working towards a healthier financial future, a Tax Exempt Savings Plan can make saving easy. 

Contact us today to find out more, or give us a call on 01226 741 000, where one of our team members will be more than happy to assist you in starting your financial journey to long-term stability. 

This article 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.