Q. I was a subscriber to First Telecom's top-up service for cheaper international calls – a prefix number had to be dialled to get access. I last topped up the minimum allowed, £20 plus VAT, in mid-July.
About two weeks later a recorded announcement pre-access told me that First Telecom was discontinuing the service in mid-September and any remaining credit should be used by then. I was out of the UK from 20 August to 3 October, so I did not have the opportunity to use my remaining credit of £12.77.
On my return I tried to obtain a refund. I was told that as an act of goodwill First Telecom has been refunding balances over £15, but not for less than that. First Telecom took over my account from my previous provider Breathe in October 2003. No reference was made to the closing of the service at the time I topped up. DB, Sussex.
A. We contacted First Telecom, which is part of First Utility. A spokeswoman says: "We ceased the top-up and talk service on 15 September 2012 and gave our customers a notice period from 31 July 2012. A decision was made to cease the service and we recorded a notification to advise all of the customers who currently used the service 30 days in advance, as per the terms and conditions.
Our terms and conditions also state that if a balance is below £15 we will not refund it back. However, we appreciate that [the reader] has been a loyal customer for a very long time and in light of this, we will waive this fee along with 'fast-tracking' the cheque refund for £12.77." We share your concern about this business practice and will happily pursue the cases of any other readers similarly affected.
We are particularly concerned as we also recently took up the case of a reader about the parent company, First Utility (Questions of Cash, 11 August 2012), which led to the promise of a refund and compensation, yet that payment only arrived after this column had to issue several reminders. Those delays were caused by "human error", First Utility has told us, after a departing member of staff failed to reallocate the task of making the payment to a colleague.
Q. My wife and I invested £50,000 in a Prudential Flexible Investment Plan four years ago. The bond has been performing quite well and will mature in October 2013. We have the option of extending the maturity date for two further years. If we decide to cash in the entire bond, or lift our profit at the end of the period, will it be subject to income tax or capital gains tax?
We are aware that we each have an unused capital gains tax allowance that will reduce our liability, whereas if it is subject to income tax we will have to pay 20 per cent on the entire amount. Can any of the management fees be offset against our tax liability? JC, Ayrshire.
A. Danny Cox of the financial advisory firm Hargreaves Lansdown says: "The Flexible Investment Plan is an onshore investment bond. Tax at an assumed rate of 20 per cent is already paid within the bond, though in practice the actual rate is lower. If you are a non-taxpayer, you cannot reclaim the tax paid within the bond. When you cash in the bond, providing the profit, when added to your other taxable income, does not take you into the higher-rate tax band, which is £42,475 for 2012/13, there is no additional tax to pay.
Where this does happen, the tax is an additional 20 per cent for higher-rate taxpayers on the 'slice' of profits which are in excess of the higher rate threshold. The slice is calculated by adding the surrender value to the value of any withdrawals, subtracting the original investment and then dividing by the number of years held. Any further tax due is income tax and therefore you cannot use your unused capital gains tax allowance.
The surrender value of the bond will automatically have taken into account the management fees. An added complication for the over-65s is that profits from an investment bond can reduce the amount of age-related personal allowances. If you are invested in a with-profits fund you need to check whether a market value reduction is applied. This has the effect of reducing the surrender value.
Generally speaking, there are more tax-efficient investments than onshore investment bonds, the most common being Individual Savings Accounts. Once ISA allowances, £11,280 per person per tax year, have been used, those who don't regularly use their capital gains tax allowance, £10,600 for 2012/13, should invest in funds or shares first. A portfolio of around £175,000 will generate average profits around the capital gains tax allowance every year, assuming a 6 per cent return."
Q. I read with interest [Questions of Cash, 13 October] about readers who booked a car rental through Holiday Autos "fully comp" and found after an accident they were not covered properly.
When I booked a hire car with National Citer through Holiday Autos I had to pay extra insurance before they would let me take the car when I collected it at Brive. One of the hire conditions was that I must pay an extra €100 for valeting if the car was not returned fully valeted. This is ridiculous as it releases the company from its obligation to take care of its cars. GK, London.
A. Holiday Autos is a brand of Lastminute.com. A spokeswoman for the company says that there appears to be a confusion, as you were not charged for any extra insurance, but were charged for making an out-of-normal hours collection. It adds that the €100 valeting fee was not charged to you and would only be applied in exceptional circumstances, where a car is left in a particularly dirty state. It is in the terms and conditions so that the charge can be applied in those exceptional circumstances.