20 September 2021

  • News

A quick guide to the Tax Exempt Savings Plan

Tax Exempt Savings Plans (TESPs) are only available through friendly societies and are an additional tax-free allowance in addition to any ISA or Junior ISA allowances.

Anyone of any age can have a TESP, and if you are aged between 11-55 next birthday, a life cover option is available. Plans start from as little as £5 per month or £50 annually up to a maximum of £25 per month to £270 annually (if you would like to invest more than this please consider our complimentary Regular Savings Plan).

When you have decided how much you’d like to save and for how long (between 10-25 years) the Society gives you a guaranteed final amount (Sum Assured) for more than you will pay in, we then aim to add bonuses to this amount (not the amount invested) and once bonuses are added they cannot be taken away. This amount is only guaranteed on maturity and as the policy is designed to be a medium to long term investment so you may get back less than you have paid in if you have to cash in the policy early.

For example:- if you were to take out a standard TESP for £25 per month over 15 years, you’ll pay in £4,500 over the term, from day one we will guarantee you a minimum final amount of £4,902 – this is the figure we calculate the bonuses on and add them to. Our current bonus rate for the TESP is 0.7% so for the first year you could earn a bonus of just over £34. If you were paying into a normal bank account you would only be earning interest on the amount invested at the time, i.e. you would save £300 in year one and earn interest at the rate applicable on a daily basis. With the Bank of England base rate at an all time low of just 0.1%it is likely that you'd be earning virtually nothing on your savings in a normal bank account.

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 date of death. Quotes are available from our main website. The sum assured for the with-life policy will depend on the amount, term and age at the start of the plan and a short medical questionnaire is required.

Got a question or want to find out more?

Why not give us a call on 01226 741 000 (Mon-Fri 9am – 5pm) or you can find more information on here, we also have an online chat service or you can email us, enquiries@sheffieldmutual.com.

We can’t offer financial advice or make any recommendations but our team would be happy to tell you more about the Society and answer any questions you may have.

If you surrender the plan before maturity (which is the term you select when first starting the plan), you may get back less than you have paid in.

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

Bonuses are not guaranteed to be paid and depend upon the performance of the with-profits fund.

All information correct at date blog set live.

This blog provides generic information and opinions of the writer and should not be relied upon for making investment decisions. No advice has been provided by Sheffield Mutual. If you are in any doubt as to whether a savings or investment plan is suitable for you, you should 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.vouched for.co.uk. Advisers may charge for providing such advice and should confirm any costs beforehand. Any reference to taxation is based on the writer’s understanding of current tax legislation and practice, which could change in the future.

By Dawn Gregory

@sheffieldmutual

Chief Commercial Officer

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