Money Q & A: The children will take control

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Over the last six years we have been investing money that our two children have received as gifts from family members, with Foreign & Colonial. It is in a designated account in our name with the children's initials. We have never claimed back the tax on dividends, mostly because the sums involved have been small. Each child will soon inherit some money from my father's estate and we may invest it in the same fund. If I claim back tax from now on would my wife and I, as bare trustees, have to hand this over to each child from the age of 18? We are reluctant to do this.

NM, BUCKINGHAMSHIRE

These investments belong to your children. You are acting as nominees for your children and acting as "bare trustees". Once your children reach the age of 18 you lose control. Your children will be able to do what they like with both the dividend income and the underlying investments.

You might as well claim the tax back. You can go back six tax years before the current tax year. So if you submit a claim before 5 April 1999 you can reclaim tax on dividends paid since 6 April 1992. The tax credit will no longer be reclaimable on investments held outside a PEP or, from next year, an ISA (individual savings account), which is the tax shelter successor to the PEP.

Income from gifts made by a parent, such as interest on money put in a savings account, counts as the parents' income if the income from parental gifts comes to more than pounds 100 per parent in a tax year. This rule prevents tax avoidance by parents who put their own investments in their children's names. However, the pounds 100 rule does not apply if the income is retained within the bare trust. And if the income from parental gifts comes to pounds 100 or less, it counts as the child's income. The child can set it against his or her own tax allowance. Income arising from gifts from other people, including grandparents, always counts as the child's income.

You already have several thousand pounds invested with F&C. Why not invest the new money in a different fund to spread the risk, rather than put all the eggs in one investment basket?

Phone bills

My grandma pays for her BT phone bill with telephone stamps, but these days finds it harder to get to the post office. I've tried to get her to swap to a less outmoded form of payment, but she is wary of direct debits because she does not want to face a large bill at the end of each quarter. Is there any other way she could pay her bill?

JC, LONDON

There are several possibilities:

Consider the BT Payment card used at PayPoints. These are found, says BT, "in corner shops, filling stations, newsagents and a host of other local outlets as well as through post offices and BT shops". Maybe there is a suitable PayPoint nearer your grandmother than the post office. The PayPoint network is still being rolled out across the UK and can be used to pay a variety of bills including the television licence.

BT lets you pay in advance anything from pounds 2 upwards. Payments are credited electronically to your phone account.

You can ask for monthly bills. And if you choose to pay the full bill each month by direct debit you save pounds 1 a quarter.

Your grandmother could save up the money at home and then pay the bill once at the post office.

There are several ways to keep the bills down:

Everyone should register for the Friends and Family Best Friend scheme. It gives a 20 per cent discount on calls to one number and a 10 per cent discount on calls to nine more numbers you nominate.

If your grandmother's bill is less than pounds 12.71 (excluding VAT) per quarter, on average, then she can register for the light user scheme to get a rebate. The maximum rebate is pounds 16.38 (plus VAT) per quarter for someone who makes no outgoing calls.

The BT In-Contact scheme costs pounds 9.25 a quarter. You can receive calls and make calls to the operator and emergency services. You also use Ring Me Free, which allows you to nominate numbers of, for example, relatives who agree in advance to have your calls added to their phone bills. This service costs them 10p extra per call. BT is on 0800 800 150.

Write to the personal finance editor, Independent on Sunday, 1 Canada Square, Canary Wharf, London E14 5DL, and include a phone number; or fax 0171-293 2096; or e-mail i.berwick@independent.co.uk

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