Money
Our experts
Q&A: Children's savings, tax and benefits
Saga Magazine Money Clinic expert John Husband answers your personal finance questions:
Q: I have been investing £25 a month in a friendly society plan for my grandson since birth. It matures in April when he is 10 and will be worth £3,044. What shall I do with the money for his long-term benefit? Could I put it in a stakeholder pension in his name, for example?
A: A stakeholder pension is an option as you can invest up to £3,600 a year for anyone. On present form that might grow to more than £55,000 by his 60th birthday to provide a pension of £3,600 a year. But the money may come in more useful sooner than that – to help him through college, for example. You could put it in a children’s savings account where at present rates, typically 6%, it would grow to about £4,850 by his 18th birthday.
Q: When tax-free interest is withdrawn from an ISA account does it continue to be exempt from tax or does it become earned income?
A: Any income from tax-free investments, such as ISAs, TESSAs, National Savings Certificates and Premium Bond prizes remains exempt from tax and is not declared to the taxman. Only if the money were reinvested in a taxable investment would the income that this generates become subject to tax.
Q: I have quite a lot of money in fixed income bonds with banks and building societies. Would this be covered by the new Government guarantee on deposits up to £35,000?
A: Yes. Fixed interest bonds are also being treated as deposits.
Q: My daughter is getting sickness and housing benefit because she is on kidney dialysis. In my will I have bequeathed my money to be divided equally between her and my two other children. This should amount to a few thousand pounds each. Would this affect her benefits?
A: No. The first £6,000 is disregarded. Anything above that would be taken into account and if she had savings of £16,000 or more she would not be entitled to any housing benefit unless she was also in receipt of pension credit.
Q: If you are receiving pension credit would you still be entitled to it if you sold your house or won the pools or the National Lottery?
A: Pension credit is a means-tested benefit, so you are required to report any significant changes in your personal financial circumstances. Failure to do so leaves you open to charges of benefit fraud.
Q: My father died recently and I will inherit £40,000 as my share from the sale of the house. If I invest the money will I have to pay income tax on the interest? I currently don’t pay tax as I’m 72 and have only a modest pension.
A: You will have to pay income tax if your income from all sources exceeds your age allowance, currently £7,550 for those aged between 65 and 74. You can get round that to some extent by putting money in tax-free savings such as ISAs.
Q: Our daughter is getting married shortly. Is it true that we can gift money to her which would not be potentially subject to inheritance tax?
A: Yes. You can give up to £5,000 if you are the parent of one of the couple, £2,500 if you are a grandparent and £1,000 to any other person getting married. You can also give her your £3,000 annual allowance if you haven’t used it already.
Q: I am 77 years old and my total income is a state pension of £5,015 and a private pension of about £1,500 a year. Yet tax is being deducted from my private pension. Surely I should not be paying any tax at all?
A: Absolutely right, as at your age your personal tax allowance is £7,690. Explain this to your provider. If they don’t respond, ask your tax office to give you a notice of your tax code which you can forward to them.
Q: I am considering equity release but my mother lives with us. Will this be a problem?
A: No. Another person being resident is not a problem. You should speak to a specialist adviser, though, to make sure she is protected.
Q: What's the best way to take holiday money abroad?
A: The simplest and most convenient way is probably to take your bank debit card for obtaining cash and a credit card for purchases. It's a good idea to take some travellers' cheques as well in case you have problems with your cards or they are lost or stolen. You can get commission-free travellers' cheques and currency at the Post Office, but ask your bank whether they can match that first.
Q: Following the Northern Rock disaster, how can I be sure my savings are safe?
A: Absolute security is almost impossible in this world. Any money in National Savings is safe, so long as the country isn’t invaded. To be on the safe side, don’t deposit any more than £35,000 with any one bank.
* John Husband's latest Q&A session first appeared in the January 2008 edition of Saga Magazine. John's answers represent his own opinions and are for general information only. Always seek independent financial advice. Email John your personal finance questions at web.editor@saga.co.uk
