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.