Gifts for grandchildren

Peter and Vivien Hutchinson want to retire comfortably

NAMES: Peter and Vivien Hutchinson.

AGES: 65 and 54.

OCCUPATIONS: Peter is self- employed, providing courses for people convicted of alcohol-related offences, and Vivien, his second wife, receives invalidity benefit.

Peter plans to work at least a further three years and possibly until he reaches 70. They are committed Christians and own their own home. Their income consists of a company pension, state pension and earnings for Peter, and invalidity benefits for Vivien. This is sufficient for their needs and Peter's earnings are likely to increase over the next few years due to the expansion of his business.

They are reasonably cautious but accept that stock market-linked investments provide potentially higher returns. Their portfolio is a mixture of unit trusts, PEPs, bonds with insurance companies, and traditional accounts with banks and building societies, including a Tessa for Peter and National Savings Income Bonds for Vivien. They hold approximately 40 per cent of their total portfolio in joint names, with the remaining 60 per cent divided between them.

PROBLEM: They wish to make lump sum gifts to each of their six grandchildren, all under seven years of age, with the proceeds payable when they become 18, without need for reinvestment. Investment preference is for ethical/environmental funds where possible but not at all costs.

Vivien's tax allowance is not being used. Apart from a modest regular income from her Income Bonds, all investment income received is taxed at source. As her only other income is from tax-exempt invalidity allowance, she is not exceeding her personal allowance and should receive investment income gross. They would like to maximise returns on funds required for a "rainy day".

Peter contributes pounds 100 a month to a personal pension plan. He wonders whether this should be increased and wants to ensure Vivien receives the benefits on his death.

After withdrawing funds to make investments for the grandchildren, and leaving a sum to cover emergencies, a further pounds 15,000 is available for re-investment from their joint account, to which around pounds 3,700 can be added from the sale of shares.

THE ADVISER: Bina Abel, financial planning manager at Bradford & Bingley Building Society's independent financial advice arm (01423 862954).

THE ADVICE: For the grandchildren, unit trusts should be set up in the joint names of Peter and Vivien, with each child as a named beneficiary. This to be in six blocks of pounds 1,000 or 12 blocks of pounds 500. The funds should be Credit Suisse Fellowship fund (Ethical) and/or NPI Global Care (Green).

Tax credits from reinvested dividends can be claimed by the children's parents and either put into a savings account or given to the children as pocket money. This utilises Peter's inheritance tax- exempt allowance of pounds 3,000 for 95/96 and 96/97 if done prior to the end of the current tax year.

Vivien should register for gross interest by completing R85 forms at all banks and building societies before the end of March to claim back any tax already deducted this fiscal year. This will also ensure future interest is added gross. As much of the money in traditional accounts as possible should be placed in Vivien's name.

She should also obtain forms 352 (certificate of tax paid) from each institution where tax has been paid in previous years and use these and the tax vouchers from the unit trusts and shares to reclaim tax already paid. Forms can be requested from Inland Revenue. Claims can be made back to 1991 when it became possible to reclaim tax on investment income.

For a rainy day, use high-interest instant access accounts, such as Sainsbury's, which pays 5.75 per cent gross. Excess income can be mopped up in a Bradford & Bingley monthly saver account, paying 6.5 per cent gross between pounds 10 and pounds 100 a month, for a minimum of 12 months.

Vivien should consider a Tessa, even though she is a non-taxpayer at present. Some accounts pay more than 6 per cent gross for minimum investments of pounds 500 with no notice or penalty if closure is necessary before the end of the five-year term. Interest on closure can be paid gross to a non- taxpayer. This gives a better return than an instant access or notice account, and if access is not required, a bonus may enhance the interest rate further. Should Vivien's tax situation change, she would still be entitled to gross interest if the funds remained invested for the full term.

As for Peter's pension, rather than increasing contributions into his current plan, he should consider additional single-premium pension contributions. The setting-up costs are much lower and as there is no commitment to add to the plan this would leave Peter free to make decisions each year on the size of his contribution.

Different providers can be chosen each time. When an annuity, or retirement income, is bought, all the funds can be transferred to the annuity provider offering the best deal. Money being invested for five years could be in a with profit fund, for example, Commercial Union, or for shorter terms a cash fund with Standard Life.

Should Peter die before taking benefits from his pension, the funds would go to Vivien. He should check this applies with his pension arrangement. When retiring, he should ensure he takes the maximum tax-free cash and buys a widow's pension with his fund to ensure as much benefit as possible passes to Vivien. Both Peter and Vivien should review their wills. Any borderline inheritance tax liability should be to be discussed with a solicitor.

Regarding other investments, assuming that the maximum single- premium pension contribution is made, I would suggest a pounds 6,000 PEP before the end of the current tax year for Peter and another pounds 6,000 as soon as possible after the start of the new tax year.

Corporate-bond PEPs should be considered as income is going to be important when Peter finally ceases to work, and this type of PEP provides a more consistent income than usually available with unit trust or equity-based PEPs. I suggest Barclays Unicorn and M&G.

Any remaining funds should be used to set up a pounds 3,000 Tessa for Vivien, and to top up Peter's Tessa with pounds 1,800 in November.

Suggested Topics
News
scienceExcitement from alien hunters at 'evidence' of extraterrestrial life
Life and Style
Customers can get their caffeine fix on the move
food + drink
News
newsRyan Crighton goes in search of the capo dei capi
Extras
indybest

PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
Arts and Entertainment
Actors front row from left, Jared Leto, Jennifer Lawrence, Meryl Streep, Ellen DeGeneres, Bradley Cooper, Peter Nyongío Jr., and, second row, from left, Channing Tatum, Julia Roberts, Kevin Spacey, Brad Pitt, Lupita Nyongío and Angelina Jolie as they pose for a
film
Sport
sport
Life and Style
techCould new invention save millions in healthcare bills?
Sport
David Moyes gets soaked
sport Moyes becomes latest manager to take part in the ALS challenge
Voices
A meteor streaks across the sky during the Perseid Meteor Shower at a wind farm near Bogdanci, south of Skopje, Macedonia, in the early hours of 13 August
voicesHagel and Dempsey were pure Hollywood. They only needed Tom Cruise, says Robert Fisk
News
peopleEnglishman managed quintessential Hollywood restaurant Chasen's
Life and Style
food + drinkHarrods launches gourmet food qualification for staff
Arts and Entertainment
Michael Flatley prepares to bid farewell to the West End stage
danceMichael Flatley hits West End for last time alongside Team GB World champion Alice Upcott
Life and Style
Horst P Horst mid-fashion shoot in New York, 1949
fashionFar-reaching retrospective to celebrate Horst P Horst's six decades of creativity
News
Members and supporters of the lesbian, gay, bisexual, transgender (LGBT) community walk with a rainbow flag during a rally in July
i100
Life and Style
Black Ivory Coffee is made using beans plucked from elephants' waste after ingested by the animals
food + drinkFirm says it has created the "rarest" coffee in the world
Life and Style
news

As Voltaire once said, “Ice cream is exquisite. What a pity it isn’t illegal”

Life and Style
food + drinkThese simple recipes will have you refreshed within minutes
Finacial products from our partners
Property search

A student's guide to financial survival: You don't have to drown in debt at university

Fresh from A-level delight, the moment does not have to be soured by students resigning themselves to thousands of pounds worth of debt in three years' time. Rob Griffin sees how to pass the university challenge

'Dismal' eurozone data sparks concerns

European Central Bank chief Mario Draghi is under pressure to launch promised stimulus before the EU slides further
Love but not marriage: property is one area where cohabiting couples are in danger of losing out

How couples can protect their financial interests when cohabiting

People who simply live together cannot assume they have the same rights to each other's assets as spouses or civil partners. Michelle McGagh sees how they can protect their financial interests

India could be jewel in the crown for investors

With a new government and an ambitious prime minister, the country offers the prospect of strong returns. But there may be hiccups ahead, warns Simon Read

Child Maintenance Service to replace Child Support Agency - but is it better?

Reforms to the vexed question of child support payments by absent parents mean extra charges for both sides. Neasa Macerlean reports

Barclays's new life insurance heralds a revolution on the high street

The new product marks a shift towards 'clear, straightforward and standardised' banking products, says Simon Read

How to protect your assets if the stock markets begin to head south again

Are you worried about your portfolio? Nick Paler asks fund managers and investment insiders for advice
Fuel poverty campaigners united in criticising the delays in helping those in fuel poverty

Plans to tackle fuel poverty are slammed by campaigners

Charities and action groups believe that the Government's proposals are woefully inadequate
Sell it with flowers: competition is 'intense' for homes with outside spaces

Gardens add a tenth to the value of your home

A London estate agent yesterday put a price on having a garden. David Pollock of Greene & Co reckons it can increase a property's value by a tenth.

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Network Engineer - CCNP, Hedge Fund, London

    £50000 - £60000 per annum: Harrington Starr: Network Engineer - CCNP, Hedge Fu...

    Senior Network Engineer-CCIE, Multicast, Low Latency

    £60000 - £70000 per annum: Harrington Starr: Senior Network Engineer-CCIE, Mul...

    Network Infrastructure Engineer

    £30000 - £50000 per annum: Harrington Starr: Network Infrastructure Engineer (...

    Network Engineer (CCNP, BGP, Multicast)

    £35000 - £45000 per annum: Harrington Starr: Network Engineer (CCNP, BGP, Mult...

    Day In a Page

    All this talk of an ‘apocalyptic’ threat is simply childish

    Robert Fisk: All this talk of an ‘apocalyptic’ threat is simply childish

    Chuck Hagel and Martin Dempsey were pure Hollywood. They only needed Tom Cruise
    Mafia Dons: is the Camorra in control of the Granite City?

    Mafia Dons: is the Camorra in control of the Granite City?

    So claims an EU report which points to the Italian Mob’s alleged grip on everything from public works to property
    Emmys look set to overhaul the Oscars as Hollywood’s prize draw

    Emmys look set to overhaul the Oscars as Hollywood’s prize draw

    Once the poor relation, the awards show now has the top stars and boasts the best drama
    What happens to African migrants once they land in Italy during the summer?

    What happens to migrants once they land in Italy?

    Memphis Barker follows their trail through southern Europe
    French connection: After 1,300 years, there’s a bridge to Mont Saint-Michel

    French connection: After 1,300 years, there’s a bridge to Mont Saint-Michel

    The ugly causeway is being dismantled, an elegant connection erected in its place. So everyone’s happy, right?
    Frank Mugisha: Uganda's most outspoken gay rights activist on changing people's attitudes, coming out, and the threat of being attacked

    Frank Mugisha: 'Coming out was a gradual process '

    Uganda's most outspoken gay rights activist on changing people's attitudes, coming out, and the threat of being attacked
    Radio 1 to hire 'YouTube-famous' vloggers to broadcast online

    Radio 1’s new top ten

    The ‘vloggers’ signed up to find twentysomething audience
    David Abraham: Big ideas for the small screen

    David Abraham: Big ideas for the small screen

    A blistering attack on US influence on British television has lifted the savvy head of Channel 4 out of the shadows
    Florence Knight's perfect picnic: Make the most of summer's last Bank Holiday weekend

    Florence Knight's perfect picnic

    Polpetto's head chef shares her favourite recipes from Iced Earl Grey tea to baked peaches, mascarpone & brown sugar meringues...
    Horst P Horst: The fashion photography genius who inspired Madonna comes to the V&A

    Horst P Horst comes to the V&A

    The London's museum has delved into its archives to stage a far-reaching retrospective celebrating the photographer's six decades of creativity
    Mark Hix recipes: Try our chef's summery soups for a real seasonal refresher

    Mark Hix's summery soups

    Soup isn’t just about comforting broths and steaming hot bowls...
    Tim Sherwood column: 'It started as a three-horse race but turned into the Grand National'

    Tim Sherwood column

    I would have taken the Crystal Palace job if I’d been offered it soon after my interview... but the whole process dragged on so I had to pull out
    Eden Hazard: Young, gifted... not yet perfect

    Eden Hazard: Young, gifted... not yet perfect

    Eden Hazard admits he is still below the level of Ronaldo and Messi but, after a breakthrough season, is ready to thrill Chelsea’s fans
    Tim Howard: I’m an old dog. I don’t get too excited

    Tim Howard: I’m an old dog. I don’t get too excited

    The Everton and US goalkeeper was such a star at the World Cup that the President phoned to congratulate him... not that he knows what the fuss is all about
    Match of the Day at 50: Show reminds us that even the most revered BBC institution may have a finite lifespan – thanks to the opposition

    Tom Peck on Match of the Day at 50

    The show reminds us that even the most revered BBC institution may have a finite lifespan – thanks to the opposition