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Tax-efficient investing

I would like to invest in the stock market now that it has picked up. I am 53 and want to know a good way to do this without paying too much tax.

Currently the most tax efficient investments are individual savings accounts (ISAs). You can choose between cash or equities (stock and shares) types.

With an equity ISA you will have a choice of unit trust funds, and can choose 'safer' funds, such as deposit funds, or higher risk, such as Far East funds.

You can invest a lump sum or pay monthly. Monthly investments can benefit from pound cost averaging. This means that in months when prices are down, your money will buy you more units. When the market recovers, those units should increase well in value.

As you are in your fifties, you can benefit from the new higher annual investment limit of £10,200 for anyone who will be aged 50 or over, that came into force on 6 October.

It will apply regardless of age from 6 April 2010. Until then the maximum annual investment for people under 50 is £7,200.

You can choose to invest up to £5,100 in a cash ISA and the remainder in an equity ISA, or put the whole £10,200 (or £850 a month) in an equity ISA.

Bear in mind, though, that ISAs' favourable tax treatment is subject to legislation.

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