Unit and investment trust managers do not have to pay capital gains tax on the sale of investments within the fund. You won't be liable to tax on any gains on the sale of units unless you have used up your capital gains tax exemption.

With an insurance bond, however, the insurance company has to pay tax on any gains within the bond. Even if you do not have to pay any further tax on the profits from the investment, your net return will of course be reduced by the tax already paid.

Conclusion: If you do not normally use your capital gains tax exemption, you may be better off with unit or investment trusts than insurance bonds, depending on the net rate of return. Saving on tax contributes towards your £2,000 investment nest egg.

Next: Children have tax allowances too