Your questions answered by an expert panel from Coopers & Lybrand

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My son begins a four-year university course in October and will be eligible for a full student grant. I have saved pounds 4,000 to help him through the new phase of his life and hope to continue putting pounds 100 a month aside for him. Can you please tell me the best way to use the money I have saved (at present in a Post Office account) and the monthly amount, currently his allowance?

Your letter does not say anything about your tax status. But since you are able to provide a regular allowance to your son and have already saved pounds 4,000, we assume you have a reasonable income and pay tax on a regular basis.

You may therefore like to consider making a gift of the money you have saved for your son.

Assuming he is over 18 he will be taxable in his own right. But as a student, even with a holiday job, he is unlikely to be earning more than the single person's tax allowance and so income earned on the savings could be tax-free.

We would suggest you look at the range of building society postal accounts as these may offer a better rate of interest than similar traditional bank or building society accounts and some National Savings accounts.

The pounds 100 per month can be added to these savings or alternatively could be passed directly to your son to help with his monthly expenses with the postal account being used as a "top-up" when required.

As your gifts are cash, there are very few tax implications to worry about but the main one is inheritance tax.

The pounds 100 per month is likely to be treated as normal expenditure out of income. The gift of a pounds 4,000 lump sum may be covered by the inheritance tax annual exemption of pounds 3,000 with the balance using up part of last year's exemption if this was not used.

My employer gives me a choice of taking cash instead of a company car. How do I work out whether I would be better off taking it? I would like to take cash because I do little business motoring and my wife has a good company car which we use for long journeys at weekends.

You have already decided on the important issue: you do not need a company car or want to drive one.

To calculate the financial consequences you need to work out the cost of the company car to you, presumably tax on the benefit plus perhaps private petrol.

You must then compare this with the cost of buying and driving your own car, deducting the cash alternative which your employer will pay you (net of tax and National Insurance contributions) and any business mileage reimbursement he would have to pay.

I would like some information about Inheritance Tax. Does it apply to non-residents who hold investments as deposits in UK institutions? When was it introduced and at what level does it take effect?

Inheritance Tax is very complicated and we suggest that you obtain a publication specialising in the subject (available from technical bookshops or HM Stationery Office) or take professional advice.

Inheritance tax was introduced in 1986 as the replacement for Capital Transfer Tax. The tax applies to chargeable transfers made by an individual during life and the value of the estate on death.

The first pounds l54,000 of chargeable transfers in any seven-year period are taxed at a nil rate and in addition there are a number of small exemptions.

Thereafter a flat rate of 40 per cent is charged, though only half that rate applies to lifetime transfers.

The tax applies to individuals who are domiciled in the UK and to transfers of property in the UK, by non-domiciled individuals, subject to certain exceptions.

The Prime Minister this week hinted that the Government may abolish both inheritance and capital gains tax.

I am a pensioner with a good pension from previous employment. My wife has no pension income of her own other than a share of the state pension because she did not work from when we were married. I have been advised by a friend that it would be best to hold our investment income in my wife's name because there would be tax savings and I wondered if you could explain this to me?

Individuals are entitled to reduce their tax bill using their personal allowance, a lower tax band (20 per cent) and a 25 per cent tax band before paying tax at the higher rate of 40 per cent.

If your wife has no income of her own, then she is not using her personal allowance or the 20 per cent and 25 per cent band whereas you will be paying tax on a substantial pension - perhaps even at the top rate of 40 per cent.

It therefore makes sense to think about holding investment income in your wife's name as she can take advantage of her personal allowances to offset against the first tranche of investment income and then will pay further tax at 20 per cent and only then at 25 per cent.

You would have to have very substantial amounts of investment income for your wife to be paying tax at 40 per cent on these so there is likely to be a saving if you are happy to put all of the investments in your wife's name.

You must bear in mind, however, that for this to work for tax purposes, you will have to make a gift of the investments to your wife and she will be then holding them in her own name and be free to do whatever she likes with them.

It is possible for individuals to hold assets jointly with different proportions of the assets owned by each individual but this is complex and I would suggest you take advice if you think about setting up anything complex.

I bought 1,000 shares in a company five years ago at a time when the cost of the shares was pounds 1 per share and bought some further shares two years ago when the cost was pounds 2 per share. I recently cashed in the investment at a small profit. Because of other capital gains I have already incurred I will be over the annual exemption for the current tax year. How do I calculate the capital gain when I have bought shares at different times?

All shares of the same class in a single company have to be pooled for capital gains tax purposes but you have to calculate the allowance for inflation (called indexation allowance) on a different basis because it is affected by the cost of the shares and the date these were acquired on.

The calculation is to take the date you acquired the first holding of shares and the price you paid for them and then increase that cost by the inflation allowance for the period from the date of acquisition until the date you acquired the second holding of shares.

You would then add at that date the cost of the second holding shares and then inflate the total figure from that second date to the date of sale. This total figure can then be compared to the sales proceeds of the shares for working out your capital gain.

The calculations are even more complex if you are not selling the entire holding but, in thise case, we have assumed that you are.

Readers should send their questions to our panel of experts at Question Time, Personal Finance Department, The Independent, 1 Canada Square, Canary Wharf, London, E14 5DL While we cannot answer readers questions on an individual basis all letters will be sent to Coopers & Lybrand and a representitive selection will appear in Money each week.

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