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.

Start your day with The Independent, sign up for daily news emails
Suggested Topics
Arts and Entertainment
Sir Bruce Forsyth with Tess Daly in the BBC's Strictly Come Dancing Christmas Special
tvLouis Smith wins with 'Jingle Bells' quickstep on Strictly Come Dancing's Christmas Special
News
peopleIt seems you can't silence Katie Hopkins, even on Christmas Day...
Arts and Entertainment
Wolf (Nathan McMullen), Ian (Dan Starky), The Doctor (Peter Capaldi), Clara (Jenna Coleman), Santa Claus (Nick Frost) in the Doctor Who Christmas Special (BBC/Photographer: David Venni)
tvOur review of the Doctor Who Christmas Special
Arts and Entertainment
Left to right: Stanley Tucci, Sophie Grabol and Christopher Eccleston in ‘Fortitude’
tvSo Sky Atlantic arrived in Iceland to film their new and supposedly snow-bound series 'Fortitude'...
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
Finacial products from our partners
Property search

Simon Read: The point of having protection insurance? The right cover can help reduce your financial concerns at a time of extreme worry

In May Nicola Groves got a massive shock. The 45-year-old mother of two was told, bluntly, that she had breast cancer. "When I heard the words, 'You do have breast cancer and you are going to lose your breast', I felt as if time stood still," she says.

Mark Dampier: Maybe boom, maybe bust, but we'll probably just muddle along

It's that time again when the media looks back over the past year and forward to the next. I am reminded of an old film, The Day the Earth Caught Fire (1961). Near the end of the film a newspaper prints two headlines – which one it uses will depend on whether the world is saved or doomed.

Sainsbury’s sank 7 per cent to 234p; Tesco fell 3.2 per cent to 180.2p ; and Morrisons dropped 5 per cent to 159.9p

Money Insider: Supermarkets: the real challenger banks

The supermarket banks have always excelled at offering simple, no nonsense products, and savings accounts is another area in which they fare well

Pat and Richard Astbury at their home in Norton Canes, Staffordshire. They have benefitted from the Community Energy Project aimed at helping council tenants with their energy bills. They have had solar panels installed.

Locals in Staffordshire to save hundreds after new council-backed project to install solar panels

The sun is shining on people who struggle to heat their homes and it’s thanks to a sense of community

Gross household debt reached a historic high of around 160 per cent of combined incomes in 2007

Simon Read: Give people struggling with debt some breathing space

Struggling people need help, understanding and forbearance, not ill-thought-out pronouncements

A person walks through the City of London during the early morning rush hour in London

Simon Read: Caught up in the scandal about leaks at the regulator

You won’t find me bashing the banks for the sake of it, but sadly they’ve deserved all the criticism that’s been sent their way in recent years

There were around 750,000 victims of mobile phone theft in England and Wales last year, according to official figures

Money alert: Stolen mobile phones

Gillian Guy, chief executive of Citizens Advice: 'The injustice of shock bills for crime victims must end. The Government must stand up for consumers and cap bills from lost or stolen phones at £50'

Indian workers boil sugarcane juice to make jaggery, a traditional cane sugar, at a jaggery plant in Muradnagar, Uttar Pradesh's Ghaziabad district

Mark Dampier: A hot investment story is taking shape as India lets the light in

Stirring the pot: the Indian Government’s reforms of labour rules offer hope of a brighter future for businesses 

An AA patrol man helping a woman whose scooter had broken down.

Bargain hunter: Whisk up those leftovers instead of just throwing them in the bin

Knight of the road, look out: you’ve got a new rival 

How to raise money for charity this Christmas

There are so many ways you can raise money - and awareness - for charity. Rob Griffin explains how easy it is to donate and reap financial rewards

Simon Read: The Chancellor has stamped on an unfair tax. But will the delight of homebuyers mean misery for others?

Were you surprised by the sudden reform of the rules for stamp duty on property purchases? I certainly was. I've been calling for ages for a change in the tax to make it more fair – and, at a stroke, George Osborne did just that on Wednesday in his Autumn Statement.

Santander, whose ads have been fronted by the Olympic gold medallist Jessica Ennis-Hill, was among the banks where there were potential pitfalls with shared licences

Best savings rates are not all they might seem

Consumers can sometimes think they are shopping around for a rewarding account when in one important aspect, writes Samantha Downes, they are not
The sunlit uplands: switching out of a final salary pension may seem like madness, but there could be cases where it makes sense

Gold-plated pensions – the key to retirement freedom?

With some people are weighing up whether they will be better off cashing in their final salary pension next spring, Samantha Downes asks the experts

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

    Selby Jennings: Oil Operations

    Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

    The Jenrick Group: Night Shift Operations Manager

    £43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...

    SThree: Trainee Recruitment Consultant - LONDON

    £20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

    Day In a Page

    Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

    'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

    Yazidi girls killing themselves to escape rape and imprisonment
    Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

    Ed Balls interview

    'If I think about the deficit when I'm playing the piano, it all goes wrong'
    He's behind you, dude!

    US stars in UK panto

    From David Hasselhoff to Jerry Hall
    Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

    Grace Dent's Christmas Quiz

    What are you – a festive curmudgeon or top of the tree?
    Nasa planning to build cloud cities in airships above Venus

    Nasa planning to build cloud cities in airships above Venus

    Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect
    Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

    Clocks, rifles, swords, frogmen’s uniforms

    Surrounded by high-rise flats is a little house filled with Lebanon’s history
    Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

    Four months after the bombardment, Gaza’s wounds are yet to heal

    Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
    Gastric surgery: Is it really the answer to the UK's obesity epidemic?

    Is gastric surgery really the answer to the UK's obesity epidemic?

    Critics argue that it’s crazy to operate on healthy people just to stop them eating
    Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

    Homeless Veterans appeal: Christmas charity auction

    Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
    Pantomime rings the changes to welcome autistic theatre-goers

    Autism-friendly theatre

    Pantomime leads the pack in quest to welcome all
    The week Hollywood got scared and had to grow up a bit

    The week Hollywood got scared and had to grow up a bit

    Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
    From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

    Panto dames: before and after

    From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
    Thirties murder mystery novel is surprise runaway Christmas hit

    Thirties murder mystery novel is surprise runaway Christmas hit

    Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
    Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

    Anne-Marie Huby: 'Charities deserve the best'

    Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
    The botanist who hunts for giant trees at Kew Gardens

    The man who hunts giants

    A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there