Winning Ways of the Druids; A-Z of TAX PLANNING

Article excerpt


FRIENDLY society bonds are worth a look in the search for a sound tax-free investment.

Small sums can be regularly put aside over several years, with no tax to pay on the returns.

This can make them partic-ularly attractive to higher-rate taxpayers.

Friendly societies were set up in the days before the Welfare State to pay widows' pensions, sickness and unemployment benefit to members.

Once, there were several thousand, but today only around 80 are operating. They have exotic names such as the National Equalized Druids and the Universal Brotherhood of Speculative Mechanics, and offer a range of savings, investment and insurance products. The bonds are investment-type life insurance policies which benefit from two kinds of tax relief.

The friendlies do not have to pay tax on profits, capital gains or income from investments, which gives them a head start over insurance companies, whose funds are taxed.

Tax-free status was granted in 1948 to help them stay in business after the State took over many of their traditional functions. The proceeds are also paid out free of tax because they are based on life insurance. Maximum investment in friendly society bonds is a lump sum of [pounds sterling]270 a year or [pounds sterling]25 a month, and to qualify for tax relief they must be held for 10 years.

Societies are required by law to keep half their funds in low-risk investments, so investment growth is steady and reliable rather than spectacular.

And though they are set up as life insurance policies, the amount of life cover is minimal. …