Paying tax on investments is a controversial issue. Tax-efficient investing is not necessarily about paying as little tax as possible, it’s more so about paying tax when you are supposed to.
Governments often create a number of different investment accounts that carry tax benefits, in order to encourage individuals to save more money or to help people prepare for their retirement.
Governments generally want people to save more as it reduces the burden on public funds. An example in the UK is the ISA, which allows people to invest £20,000 every year without paying tax on profits.
Tax-efficient investment accounts often come with strict rules that investors should know about. A common rule is that you cannot withdraw money before retirement without paying a penalty fee.
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