QUESTION TIME

Your questions answered by a panel from Coopers and Lybrand

My 80 year old father has received pounds 160,000 from the sale of a holiday home. He already has sufficient income to satisfy needs and his will already provides inheritance to his children up to the nil rate band limit, with the remainder passing to his wife. What should he do with the pounds 160,000, bearing in mind security is paramount?

The disposal of the property may leave your father exposed to capital gains tax.. He can reduce exposure to inheritance tax (IHT) by making gifts now which will be potentially exempt transfers. To work effectively for IHT purposes, the transfers must be outright gifts and he would therefore need to give this careful consideration, to ensure that he has enough capital to satisfy his (and his wife's) future needs. Examples of such transfers are gifts to his children or the setting up an accumulation & maintenance trust for his grandchildren. If your father dies within seven years, tapering relief may be available against the IHT arising from these transfers. After the seven years, no IHT will arise.

If he intends to invest, some of the safest investments are building society accounts, where the interest is taxable at his marginal rate, National Savings and gilts. National Savings offer a number of investments producing income or capital growth; the income may be non-taxable depending on the investment. With government stocks the income is taxable at present with no capital gains tax arising from their disposal. (Treatment is to change from 6 April 1996).

Your father should seek independent financial advice on the best way to deal with his capital.

I started a personal pension policy about five years ago and have now gained a university place as a mature student. I will have very little earned income over the next 3 years. Can I keep my pension policy going?

You have to have earned income in order to justify making pension contributions. If you are not earning, or earning so little that you cannot afford to make pension contributions, you will have to stop your contributions.

Contact the company who runs your pension policy to find out what they would do in this situation. Some companies levy extra charges or reduce the amount allocated to the pension fund (the allocation rate) when regular premiums are restarted in future.

I am looking for a high rate of interest. I have seen a building society account offering a high rate of interest but I have never heard of them. How secure will my money be?

When choosing an investment you should always be alert if the return offered is a lot higher than on other comparable investments. Sometimes the higher return is given in recognition of the higher risk involved. This is not to say that all investments offering high returns are risky but you should make sure you understand what you are investing in.

As far as building societies are concerned, if the building society were to become insolvent, investors would be compensated by the Investor Protection Fund under the Building Societies Act 1986. Compensation is restricted to a maximum of 90% of the first pounds 20,000 ie a maximum of pounds 18,000.