Healthy Investment Tax Exempt Savings Plan

A Healthy Investment Tax Exempt Savings Plan is a regular savings plan from a friendly society that pays out tax free when it matures. You pay in between £10 and £25 a month, or up to £270 a year, for a term you choose, and the money is invested in Healthy Investment's Ethical With-profits Fund¹. When the policy matures, none of the money you receive is taxed, and the fund itself is free of UK income and capital gains tax¹.

The plan comes in two versions. One includes life cover throughout the term, paying the guaranteed sum assured plus bonuses if the person covered dies before the plan ends, and no medical questions are asked². The other, the Tax Exempt Savings Plan (without life cover), is a regular savings plan without that cover³.

What makes the plan distinctive is the tax treatment. The tax free savings allowance it uses is in addition to your ISA allowances, so it does not eat into the £20,000 you can put into ISAs each tax year⁴. Only friendly societies are able to provide these kinds of savings plans³.

What the Healthy Investment Tax Exempt Savings Plan offers

The plan is a long-term commitment rather than a place to park money you might need. You choose a term of between 15 and 25 years on the adult version, and the plan matures on a date you pick, provided it matures before you turn 65¹. The children's version can be set to mature on a specific date, or you can simply select a term between 10 and 25 years, provided it matures on or after the child's 16th birthday².

Your money is invested in Healthy Investment's Ethical With-profits Fund². The plan grows through bonuses added to the sum assured rather than through a rate of interest paid on a balance, which is the key difference between this and an ordinary savings account. The agreed sum assured is the absolute minimum you are guaranteed to receive at maturity if all premiums are paid¹.

There are two versions to choose between. The version with life cover includes cover throughout the term of the policy¹. The version without life cover does not include it⁴. Both are tax exempt savings plans with the same underlying structure, and the difference is whether the plan pays out on death during the term as well as at maturity.

The plan is a "qualifying life policy" with a special tax status, which is what allows the tax-free treatment⁷. That status is tied to the friendly society rules, and it is why the plan is not simply an ordinary investment account with a tax wrapper bolted on.

How the tax exemption works alongside your ISA allowance

The tax free savings allowance a tax exempt savings plan uses is in addition to your ISA allowances⁴. That means paying into one does not reduce the £20,000 you can put into ISAs each tax year⁸. An ISA is a type of savings account where you do not pay tax on the interest or returns your savings earn, and you get a new allowance every tax year⁹.

The two allowances work in parallel rather than competing. Interest earned inside an ISA is already tax free, so your Personal Savings Allowance does not apply to it¹¹. The same logic applies to the tax exempt plan: the money is outside the tax net rather than using up an allowance that would otherwise be available.

The tax year runs from 6 April to 5 April the following year, and the ISA allowance resets at the start of each one¹². Some cash ISAs allow you to withdraw money and replace it within the same tax year without it counting towards your annual allowance, which is known as ISA flexibility¹³.

Savings tax rates are also changing. A tax exempt plan sits outside those rates entirely, which is the point of the wrapper.

Who can apply, including plans for children

Any UK resident can invest in a Healthy Investment Tax Exempt Savings Plan, provided the plan matures before they are 65¹. The version without life cover has a slightly different rule: any UK resident up to the age of 65 can invest⁴.

For children, the plan can be set up so that it matures on a specific date, or with a term of between 10 and 25 years, provided it matures on or after the child's 16th birthday². A tax exempt plan for children is a 10 year tax free savings plan that provides a lump sum payment for the child¹⁵.

If you are weighing this up against other ways to save for a child, a Junior ISA is a tax free way to save for children up to the age of 18¹⁶. Healthy Investment also manages both Child Trust Funds and Junior ISAs and accepts transfers between them, so it can discuss moving a Child Trust Fund to a Junior ISA or the other way round⁹.

The children's plan is designed so that the payout goes to the child. On maturity or surrender the payment is made to the child as the beneficiary of the policy if you are saving for a child¹⁸. Healthy Investment states that the payout will be paid to your child at all times, as the plan is for their sole benefit¹⁹.

How the with-profits fund and bonuses work

With-profits works differently from a straightforward savings account. Instead of receiving direct investment returns such as dividends, rents, interest and capital appreciation, with-profits planholders receive bonuses²⁰. The fund holds back some of the returns made in good years to subsidise bonuses in years of poorer performance⁶.

Bonuses come in more than one form. A reversionary bonus is declared annually, and once added it cannot be taken away if the policy runs to maturity¹⁸. A terminal bonus is an additional final bonus that may be added on maturity or on the death of the insured person, and it can be changed at any time or withdrawn altogether². Interim bonus rates sit between the two: unlike declared reversionary bonus rates, which can never be changed, interim bonus rates can be increased or reduced by the Board at any point during the year².

The bonus rate is not guaranteed. Healthy Investment states that although the plan grows through bonuses, bonus rates are not guaranteed and in exceptional circumstances could be nil¹. All reversionary and interim bonus rates are net of charges, and the bonus rate declared is the bonus rate you receive⁵.

For the children's plan, the annual bonus rate is declared at the end of March based on the sum assured, and it is not guaranteed¹⁸. The pattern is common across the sector: with-profits funds generally declare bonus units at least yearly²⁰.

Life cover included in the plan

The version of the plan with life cover includes it throughout the term of the policy¹. If the person covered dies before the plan ends, the estate receives the guaranteed sum plus bonuses, provided all contributions are up to date². The life cover starts on receipt of the first premium Healthy Investment receives².

No medical questions are asked. Healthy Investment states it does not ask any medical questions when you choose to take out a Tax Exempt Savings Plan for a child². The same approach is common across friendly society plans: a friendly society tax-exempt savings plan often includes life insurance cover, paying the guaranteed sum assured plus any bonuses if you die during the term, commonly without prior underwriting²¹.

Life cover is always included in savings endowment policies, with the cost taken from the returns on the investment and varying according to the consumer's age when the plan started; charges tend to be higher if the plan started later in life²². That is worth knowing because it means the cover is not free-standing: it is built into the product's economics rather than added as a separate policy.

The amount of cover is set by a formula rather than chosen by you. On one friendly society plan the amount of life cover is calculated as 75% of the contributions you are due to make over the initial 10 year term²³. The version of the Healthy Investment plan without life cover does not include it at all⁴.

How the charges work

Charges on a with-profits plan are not usually presented as a single visible fee taken from your account. On one friendly society tax exempt savings plan the annual management charge is 1.95% of the value of the fund²³. On Healthy Investment's plan, all reversionary and interim bonus rates are net of charges, and the bonus rate declared is the bonus rate you receive⁵. In other words, the charge is reflected in the bonus rate rather than deducted separately.

That structure matters when you compare the plan with an ordinary savings account. A savings account quotes an interest rate and pays it; a with-profits plan declares a bonus rate that has already had charges taken out of it. The two are not directly comparable figures, and the provider's site carries today's bonus rates rather than this page.

The cost of the life cover is also absorbed into the product rather than billed separately. Life cover is always included in savings endowment policies, with the cost taken from the returns on the investment and varying according to the consumer's age when the plan started²². That means the effective cost of the plan depends partly on when you started it, not only on the fund's performance.

Because the plan is a qualifying life policy, the tax treatment is part of the product design rather than an add-on⁷. The fund the money is invested in is free of UK income and capital gains tax⁵.

Stopping payments or cashing in early: what you could lose

This is the part of the plan that carries the most risk, and the provider is direct about it. If your circumstances change and you are unable to continue your payments, you may receive back less than you have invested, and in the first year you are unlikely to receive back anything¹. The same warning applies to the version without life cover⁴ and to the children's version².

You cannot make withdrawals from the plan. If your circumstances change you can surrender your policy, but the surrender value may be less than the amount paid in, and a surrender penalty applies if it is cashed in before maturity⁷. If you surrender before maturity, you may get back less than you have paid in⁷.

There is also a tax consequence. If you stop your monthly payments into the plan, or cash it in early, you could end up having to pay tax on any gains²³. The tax-free treatment applies when the plan runs its course; cutting it short can change that.

If you miss some monthly contributions, Healthy Investment allows 13 months to pay the missing contributions, altogether in one lump sum²³. That is a longer window than many regular commitments allow, and it means a short interruption does not automatically end the plan.

How to apply, complaints and FSCS protection

Healthy Investment says opening a Tax Exempt Savings Plan is really easy, and you can apply online or call 0161 762 5790 for help¹. The same number is given for its Standard Savings Plan⁸. The provider states it cannot offer advice, but it will talk through the differences between its plans⁹.

On protection, Healthy Investment states that its plans are covered by the Financial Services Compensation Scheme²³. The FSCS pays 100% of claims on whole of life assurance²⁵. It is worth being precise about what that covers: the FSCS insurance scheme covers specified insurance claims, and the level of protection depends on the type of claim rather than applying uniformly across everything a firm sells.

If something goes wrong, the Financial Ombudsman Service can look at complaints about savings endowments²². The ombudsman is free to consumers and can consider complaints about how a plan was sold or administered.

Healthy Investment is a mutual friendly society², and only friendly societies are able to provide these kinds of savings plans³. Its Tax Exempt Savings Plan is covered by the Financial Services Compensation Scheme⁶.

If you want to understand how these plans sit alongside other tax-free savings, the guide to tax-exempt savings plans from friendly societies covers the wider market, and how FSCS protection works for savings explains the limits. For free, impartial help understanding your options, MoneyHelper is the government-backed service.