money: Recipes for windfall shareholders

Mutual benefits: Clifford German on the latest offers
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The Independent Online
Windfalls are everyone's favourite fruit this year, and after a slow start there is now a crowd of providers offering you a home for your windfalls whether you decide to sell them for cash or keep them in the form of shares. By the end of the summer 13 million people will have received an estimated pounds 22bn worth of cash or shares from Halifax, Woolwich, Northern Rock, Alliance &Leicester and Bristol & West building societies, and from Norwich Union, Scottish Amicable and Colonial Mutual insurance companies, and who knows what other takeovers and conversions will be taking their place in the pipeline.

Not all of them will go out and spend the money, however, and several other building societies are offering deals deliberately angled at investors who want to cash their windfalls. If you only want to tie your money up for a year Coventry Building Society is offering a Fixed Rate Option Bond paying 6.7 per cent gross until the end of June next year on a minimum investment of pounds 1,000. The bond also makes you a member of the society, in case of a takeover bid! Bristol & West is offering 7.05 per cent gross on a similar sum fixed until mid- July 1998, but Bristol & West has already sold out to the Bank of Ireland.

On Monday, Market Harborough Building Society is offering an escalator bond paying 7 per cent gross in the first year, rising to 7.5 per cent in year two and 8.25 per cent in year three on sums of pounds 1,000 upwards. This one does qualify investors as members entitled to a windfall in the event of a bid.

Yorkshire Building Society, another committed mutual, is offering 7.25 per cent gross fixed until the end of 1998 on its new Mutual Benefit Bond, that also qualifies as a membership account. The minimum investment is pounds 5,000. The Staffordshire Building Society is offering 7.3 per cent gross paid yearly and fixed until April 2000, or 7.05 per cent for investors who want a monthly income. The minimum investment is only pounds 2,500 and it also conveys membership status.

These fixed-rate offers make conventional building society deposit rates look distinctly feeble, although investors must remember the rates are fixed at a time when variable rates are likely to rise.

Investors who think variable rates will rise sharply and soon might prefer Birmingham & Midshires' new Windfall Account, which offers a variable rate of 3.05 per cent on a minimum of pounds 1,000 and 3.35 per cent on pounds 5,000 upwards and offers a free share-dealing service if a minimum of pounds 2,500 is invested.

Rising interest rates may persuade more windfall shareholders to sell their shares once they have seen what they are worth when actual dealings begin. Half the Alliance & Leicester members asked for their share certificates to be sent to them, which will give them the option of selling their shares any time after the start of dealing next week. They will have missed the chance to sell them free of charge but they will at least know the price they will get when they do sell, and that could be worth waiting for.

Once again there are special offers to look out for. If you do decide to sell in the market shortly Skipton Building Society will sell them for you over the phone for a fee of pounds 15 fixed until the end of May. The ShareCentre will hold them for you and sell them for you as soon as they reach the price you choose. They will, however, charge you a minimum of pounds 7.50 each quarter for the privilege of watching the market and selling as soon as the shares reach your chosen target.

Many windfall holders will simply keep the shares they get and forget about them. That presumably is what the 500,000 Alliance & Leicester members who chose to have their shares put into an Alliance &Leicester holding account intended to do.

One certainly hopes so, because it will now cost them pounds 10 to get the actual share certificate if they subsequently decide to sell or put the shares in a tax-free personal equity plan (PEP). They might even have a problem getting the share certificate now within the 42-day deadline for putting shares into a PEP without incurring dealing charges.

But those who want to maximise their tax advantages should consider putting their windfalls into a PEP. Investors who are lucky enough to crystallise capital gains in excess of pounds 6,400 this tax year would be well advised to put their windfalls into a PEP simply so they can sell them free of capital gains tax.

Once again the ShareCentre is offering a special "PEP and sell" deal, priced at pounds 12.50 plus their normal sale commission of 1 per cent (minimum charge pounds 7.50)

If you do want to PEP and keep your windfall shares this summer, there is plenty of choice. After a slow start at least a dozen PEP providers will welcome you and your shares with open arms. Our table shows the ones which will allow you to transfer your windfall shares free of charge into a PEP, and also what they will charge you to keep them there.

Some charge a collection fee to cash the dividends for you, which can turn out quite expensive if you have a PEP with several different shares, each paying two modest dividends a year. Others charge a flat fee per company in the plan, and most charge a dealing fee if you want to buy or sell shares within the PEP.

Four managers, Barclays, NatWest, Perpetual and Save & Prosper will take windfall shares into self-select PEPs. A number of investment trust management companies, Fidelity, John Govett, Mercury, Perpetual and Schroders, will take windfall shares into a PEP free of charge and allow holders to keep them. One advantage of doing this is that the value of Pepped windfalls does not count towards your annual PEP allowance.

Another 20 unit trust managers, including Barclays Unicorn, Britannia, Hill Samuel, Legal & General, Pearl, Prolific and Schroders, will take in windfall shares but they require windfall holders to sell their shares and buy units instead.

This category includes Virgin, which will take windfall shares free of charges into both PEP and pension plans, and hold them for up to a year before they have to be converted into units. The value of swapped shares does, however, count as part of your annual PEP allowance.

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