Money
Our experts
Q&A: children's savings, gifts, ISAs, saving and spending
Below are some of your latest money questions answered by Saga personal finance experts:
Q: When our two grandchildren were born we started a Nationwide 'Smart to save' account for each of them, to last until they are 18. This is now a 'Smart card' account earning only 0.75%. We get over 4% on the Saga 2 year bond. Nationwide told me I could take the money out and buy a car if I wanted to. Each account now has £20,000.
I would very much like to hear of any options you could recommend. I do not want stock market risks, nor do I really want the children to be aware of the account before 18 (or 21). One thought is to take the money out and start 2 fixed rate bonds in my name but keep them for the children, who are now 7 & 9. I do realise that this means they become part of my estate should I die. Trust funds sound more related to stock markets? Any advice would be most welcome.
A: Many grandparents are keen to make some financial provision for their grandchildren for a variety of reasons, including help with higher education costs, house purchase, wedding costs etc. You should consider that, with savings and deposit accounts, although the money earns interest, it might not grow as much as it would if it was invested in shares. Savings accounts do not usually perform as well as money invested in shares over the long term, especially when inflation is taken into account. The effect of inflation means that money in the account could lose value over the long term. This is because prices usually rise each year and so £20 won't buy you as much today as it did ten years ago.
If you are prepared to consider other options you might think about arranging an offshore investment bond policy written in trust for your grandchildren. This might offer tax advantages on the money invested and for inheritance tax purposes. When the grandchildren attain full age the bond(s) can be assigned to them by the trustees so that they can use their own personal income tax allowances against any income tax liabilities arising when they surrender the bond.
If you would like further information, please contact Saga Personal Finance on 0800 015 3257 and ask to speak to an independent financial adviser.
Q: If my sister gave me sums of money over a period of two months prior to her death, for the purposes of opening a trust fund for her grandchildren, would this money be classed as part of her estate?
A: Generally speaking there should be no problem, although it would depend upon how much money was involved and the nature of the gift. Transfers of up to £3,000 in any one tax year are exempt from inheritance tax (IHT). If the whole amount is not used in the previous year it can be carried forward to the next. So, for example, if she did not make any gifts in the 2008/09 tax year yshe could gift £6,000 in this (2009/10) tax year. Please note that it is not possible to carry forward any more than one tax year.
If the sums involved were much larger, or if the gift into trust was not properly completed before she died, then it is possible that the gift would fall back into her estate and be assessed to inheritance tax. HMRC will sometimes investigate 'death bed' tax planning if they feel that there has been an abuse of the tax system where there has been attempt to settle large sums of money and avoid inheritance tax on the estate. If you would like further information, please contact Saga Personal Finance on 0800 015 3257 and ask to speak to an independent financial adviser.
Q: I have invested regularly in a 90-day TESSA/ISA since their introduction and the accumulated value is now approaching £50,000. I understand that the FSA Compensation limit is £50,000 with any one bank or building society. Is it safe to continue to invest in this ISA? Should I seek an alternative? I already hold shares via a PEP/ISA and am an income tax payer and so would wish to make regular investment with a net return comparable to the ISA but available for withdrawal at notice. You advice would be welcome or indeed an article on the Website dealing with this issue.
A: Your savings are protected up to a limit of £50,000 under the Financial Services Compensation Scheme if the provider is regulated by the Financial Services Authority. If you are concerned that you might exceed the compensation limit, try to spread your among different providers. With regard to shares or funds invested via an ISA, if these fall in value they are not generally covered by the compensation scheme – that is just part and parcel of the ups and downs of investing in stock markets. Most ISA providers have a facility that allows you to save on a regular basis. The net return will much depend upon: the type of fund you invest in, your personal tax position and your appetite for investment risk.
Certain types of investment fund offer greater tax advantages compared to others if held via an ISA instead of you investing in them directly. For example, fixed interest funds that generate income via interest payments (as opposed to dividends) are completely free of tax if held within an ISA, whereas if held directly by you would suffer 20% tax deducted at source.
If you would like further information, please contact Saga Personal Finance on 0800 015 3257 and ask to speak to an independent financial adviser.
Q: I am 52 and have just inherited around £30,000 as part of my late mother's estate. I have looked at savings online and feel none the wiser, given the low returns, on whether to save or to spend - possibly on a conservatory (the husband is not keen!). In the present climate, is investing in gold, art or another commodity a better prospect? I am fortunate enough to be in full-time, well-paid employment. Advice please.
A: Typical husband! Seriously though, I think before making any investment (or spending) decision you need to decide what you want the money to do for you. A conservatory would probably give considerable enjoyment and possibly add value to your property, so worthwhile considering. However, if you are going to invest the money, you need to think about how long you could tie the money up for, what sort of return you feel would be acceptable, how much access you need to your capital, and how much risk you are prepared to accept. Please bear in mind that risk and return are linked (ie the higher the risk the better the potential return and vice versa).
Gold and artwork are fairly risky assets - though undeniably enjoyable - but unfortunately they don't generate any income - only capital gains and losses. If you are not really a risk-taker by nature and assuming you are happy to tie the money up for a reasonable period of time (say 10 years) then perhaps a better bet would be to invest in a diversified portfolio of investments spread across different asset classes such as shares, property, fixed interest, commodities. If you would like further information, please contact Saga Personal Finance on 0800 015 3257 and ask to speak to an independent financial adviser.
The opinions in this article are the authors' own and for general information only. Always seek independent, professional, financial advice. This article was published in January 2010.
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