Cure a guilty conscience

You could use windfall cash to help others. Hannah Pearce explains how
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The Independent Online
YOU are in a minority - but by no means alone - if you voted "no" to a building society becoming a bank as a matter of principle. Even if you did not actually vote against, you might still feel a bit guilty about the unexpected bonus and be wondering whether there is not some use for the money that might make you feel better about it.

If you see windfall shares as free money you do not deserve and want to get rid of them, you could consider giving them to charity. In 1989 when the Abbey National dished up its free shares the Royal Society for the Protection of Birds (RSPB) was given more than 3,000 shares by a few dozen generous members. Worth around pounds 6,500 at the time, they are now worth more than pounds 40,000.

In tax terms, shares given to charity are free of capital gains and inheritance taxes, so if you are labouring under these potential tax liabilities you might see donating them as a nice solution.

Charities may, however, prefer cash donations and these can also be given in a tax-efficient way through the existing Gift Aid scheme. Gift Aid donations must be at least pounds 250 and, assuming you are a taxpayer, allow the charity to reclaim the equivalent of basic rate tax (23 per cent) on the money. If you are a higher-rate taxpayer, you to reclaim a further 17 per cent. The Charities Aid Foundation, on 01732 520000, will give further information, or contact your local tax office for the full tax details.

If instead you subscribe to the idea that charity begins at home, you might consider giving the shares, or the proceeds, to children. This might also seem appropriate, given that children who hold accounts in their own name have been excluded from the handouts. Accounts which are held by parents on behalf of children have qualified for the windfall shares, but only for the adults. This means that the account balance is added to the adult's other savings in calculating their total windfall entitlement.

People under 18 cannot hold shares directly, says the Inland Revenue, but shares can be put in trust for children. This can make the dividends and other profits on the shares tax-free, based on using the child's own tax-free personal allowances. But setting up a trust arrangement for just one set of windfall shares might not seem worth the trouble or expense. Giving the cash proceeds or cash equivalent might seem a better deal.

Children over the age of seven can have bank or building society accounts in their own name, and a number of organisations have specially branded accounts which will pay gross subject to you filling in an IR85 form on behalf of your child. These forms are normally easily available through banks and building societies.

One specially-branded children's account with an ethical slant is the Young Saver's Account offered by Triodos, a specialist ethical bank in Bristol (0500 008720). This pays 3.75 per cent gross on, for example, balances of pounds 500 to pounds 1,000 on 33 days' notice, plus a bonus of 1 per cent on the average balance after five, eight and 10 years.

Adults can also set up accounts on behalf of children, again allowing interest to be earned tax-free (if the interest is less than pounds 100 a year and again subject to filling in an IR85 form). Earmarked accounts of this kind involve a simple trust arrangement, which most banks and building societies will provide without charge.

Another option the ethically-minded might have considered is to put the shares in an ethical personal equity plan with a view to combining tax- free returns with a more high-minded investment policy.

But many ethical PEPs will not allow windfall shares to be held directly, not least because banks themselves in many cases do not qualify as ethical investments. Henderson Investors' Ethical Fund PEP (0171-638 57 57) is unusual among ethical PEPs in that it will hold windfall shares; most others require you to exchange your windfall for ethical investments.

Finally, those who want to feel worthy but also to retain the prospect of a further windfall could put the proceeds from selling their shares into an account run by the Ecology building society (01535 635 933).

The Ecology is Britain's only ethical or green building society: it offers mortgages on "environmentally friendly" properties. It pays 3.5 per cent gross on pounds 500 on instant access savings, and 6 per cent on tax-free Tessa accounts. However, it insists that neither the society's management nor its members have any interest in selling out to a bank.

q Additional reporting by Steve Lodge.

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