Should we use a savings plan to save for private medical treatment?

Published by on 19 November 2013.
Last updated on 19 November 2013

Q

My wife and I have private medical cover from my previous employer until I reach 65 at the end of the year. I wish to continue having private treatment but the premiums are high – and we lose the money altogether if we don't make a claim. I'd rather save £400 a month in a stocks and shares Isa, giving us the option of using the accumulated money for other things if we do not have to use it for medical treatment.
Are there any such savings plans directed towards medical cover or will we have to choose an appropriate unit trust or investment trust?

From:
VR/Wiltshire

A

The best place for you to invest depends upon how much you are looking to save, over how long, what you want to achieve and the risk you are looking to take.

There aren't any savings plans directed specifically at medical cover. However, even if there were this might not be appropriate for you if you might want your money available for other purposes.

While there are a huge number of different investment and savings plans, the initial challenge is you don't know when you'll need access to your money because you don't know when you might need private medical care.

Therefore, as a starting point, I would suggest building cash savings. This will avoid you having to encash any investments in the short term. You should use your annual cash Isa allowance, meaning all interest is paid tax-free, and look for a product paying competitive rates.

Once you have built up an adequate level of cash savings, at least a few thousand pounds but maybe more, you can then take a longer-term perspective and consider stocks and shares. Again, you should look to invest within a tax-efficient Isa.

Where you should invest will depend on the amount of risk you are comfortable taking. A fairly cautious option is the Cazenove Multi Manager Diversity fund, which invests one-third in shares, one-third in cash and fixed interest and one-third in other investments.

However, if you are happy to invest more in equities then HSBC FTSE All Share Index, which tracks the performance of the UK stockmarket, or AXA Framlington Managed Balanced, which is a diversified fund investing significantly in shares, could both be good choices.

Find the best cash Isa or savings account for you

What tax will I pay on a stocks and shares Isa?

The rules for stocks and shares Isas differ slightly from the cash equivalent.There will be no capital gains tax (CGT) due, but some tax will be payable on dividend income. Everyone will pay 10%. For basic-rate taxpayers this will be the same whether the money is held in an Isa or not, but higher or additional-rate taxpayers will have to pay an extra 22.5% or 27.5% if their money isn't in an Isa.

So in terms of tax, investors only stand to benefit from a stocks and shares Isa if they pay a higher tax rate or if they're likely to pay CGT.

However, as you don't need to declare Isas or any income you earn from them on your tax return, it may make sense to hold your investments in an Isa whatever tax rate you pay.

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