Can I spend my pounds 10,000 mistake?

READERS' LIVES: Bank errors ... junk faxes ... PEP plans for windfalls. Your financial queries answered

I was informed by Lloyds Bank that some pounds 10,000 had been paid into my account from National Savings. I was expecting just pounds 50. I wrote immediately to the bank pointing out that the payment was probably an error. It took three months for the bank to recognise the error and debit my account. If I had spent the money, would I have been liable to repay it?

ET, Greece

As a general rule, you probably would have to pay back money wrongly credited in this way. But the ultimate test of your liability would be in the courts. A court would look at the particular facts of an individual case, the extent to which someone ought to have known money did not belong to them, the steps they took to correct the error and the way the bank responded. In your case, pounds 10,000 was a significant sum of money. Other, smaller errors, may go genuinely unnoticed by an account holder.

But even if you do have to pay back the money, it is the bank that made the error in the first place. It follows that you should negotiate the most advantageous payback terms. You should not be charged interest or bank charges if your account is overdrawn as the result of spending money which is not yours. And you should ask for the longest payback period if a shorter period would be a financial strain. If you cannot get your bank to agree terms, try the Banking Ombudsman or, failing that, you may have to let the matter go to the courts to decide.

Junk mail has long been an irritant for many people. But now there is another menace. It's the junk fax. I have even received a fax from the British Fax Directory, whose main function seems to be to sell my fax number to interested organisations. Can it be stopped?

ST, Norfolk

The British Fax Directory will put your fax number on its list only if you specifically give it permission to do so. The fax you received from the British Fax Directory was an invitation to go on its list. The list contains about 80,000 numbers. But around one million fax owners have been contacted, which suggests that some 92 per cent of people feel like you and don't want their number circulated to all and sundry.

You can register your fax number with the Fax Preference Service if you do not want unsolicited faxes. This should cut down the number of unwanted faxes, though won't eliminate faxes from organisations that don't subscribe to the service. Ring 0345 034599 or write to: Fax Preference Service, The Publicity Centre, Hendon Road, Sunderland SR9 9XS.

At the same time, consider the Telephone Preference Service if you do not want unsolicited phone calls from commercial organisations. Ring 0800 398893 or write to: Telephone Preference Service, 6 Reef House, Plantation Wharf, London SW1 3UF.

And if you want to cut down on junk mail you can sign up with the Mailing Preference Service. Ring 0345 034599 or write to: Mailing Preference Service, Freepost 22, London W1E 7EZ. If you do get junk mail, you can send it all back in the envelope provided. There is no need to use a stamp. Let the sender pay the postage, even if you do not receive a postage-paid envelope. At the same time ask for your name to be removed from the list of the organisation that sent out the mail.

For users of the Internet, a new e-mail Preference Service is being planned.

I cannot decide whether it is worth PEPping the various windfall shares I am due. I am a basic rate taxpayer and understand that even on lower- cost PEP plans, the charges could come to more than the income tax saved on dividends. But what about capital gains tax? The starting value of all my windfall shares is high, at about pounds 5,000. Should I be worrying about capital gains tax when I sell them in, say, 10 years?

DA, Birmingham

The Chancellor is promising to reform capital gains tax, but we don't yet know what he has in mind. For now, you could make some assumptions based on the current system.

Let's say you sell your shares in 10 years, by which time they might have trebled in value from pounds 5,000 to pounds 15,000. Since you paid nothing for the shares, the entire pounds 15,000 will count as a capital gain.

The first pounds 6,500 of gains you realise in the current tax year are exempt from capital gains tax anyway. Increase that by 25 per cent to pounds 8,125, assuming inflation totalling 25 per cent over 10 years and assuming that the pounds 6,500 allowance goes up in line with inflation. Deduct pounds 8,125 from your gain of pounds 15,000 and you are left with a gain of pounds 6,875.

But you can also claim an indexation allowance, which makes gains in line with inflation tax-free. Assuming inflation of 25 per cent, this additional allowance would be pounds 1,250, that is, 25 per cent of the original value of pounds 5,000. Deduct pounds 1,250 from pounds 6,875 and you get pounds 5,625, your taxable gain. Basic rate tax on pounds 5,625, at the current 23 per cent rate is pounds 1,293.75. So pounds 1,293.75 could be the capital gains tax you save by putting the shares in a PEP. Against that saving, you will have paid PEP charges for 10 years, but you could still make a decent net saving.

However, there is another way to save this tax. If you were to spread your share sales across two tax years, you would be able to use two years' worth of CGT allowance. Thus, you could avoid capital gains tax altogether even without a PEP, depending on what other investments you have.

The above figures inevitably make a lot of assumptions. Even so, the case for some of the available PEPs is weak (one worth considering is that of Fidelity - see Money Talk on page 15). Perhaps you should risk waiting to see what the new government will do about capital gains tax.

Bear in mind that you can PEP your shares at any time through the bed- and-breakfast route selling them one day and buying them back through the PEP. There will be a cost at the time, but you can decide then whether the cost is worth incurring, taking account of the gain on your shares and the likely tax you will save if they rise further in value.

q Write to Steve Lodge, Independent on Sunday, 1 Canada Square, Canary Wharf, London E14 5DL, and include a telephone number. Do not enclose SAEs or any documents that you wish to be returned. We cannot give personal replies or guarantee to answer every letter we receive. We accept no legal responsibility for any advice given.

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