What is a limitation associated with unit-linked savings plans?

The limitation associated with unit-linked savings plans that stands out is the aspect of non-taxpayers not being able to reclaim exit tax deducted. Unit-linked savings plans often carry specific tax implications, particularly regarding exit tax when funds are withdrawn. When a policyholder exits the plan, any gains may be subject to taxation, and if an individual does not have taxable income to offset these gains (such as a non-taxpayer), they cannot reclaim the exit tax that has been deducted from their withdrawal. This situation can be a significant limitation for those in a lower income bracket or those who do not have tax liabilities, as they effectively lose out on the opportunity to reclaim that tax.

In contrast, while investment timing risk is inherent to any investment-linked product, being tied into long-term savings is a feature of these plans rather than a limitation. Furthermore, gift tax funding isn't typically a direct limitation of unit-linked savings plans, as individuals have various ways to address gift taxation that may not necessarily be related to how their savings plans are structured.