MONEY Q&A; Gifts that grow up with the children
Sunday 13 September 1998
Children's Bonus Bonds last for five years. They can be bought for children under 16 and can be held after this age until the owner is 21. The current issue, J, pays a fixed 6 per cent tax-free if held for the full five- year period. The bonds have to be bought in units of pounds 25. The maximum holding is pounds 1,000, which applies to each issue.
Your grandchild with the maximum holding of Issue J will be able to hold more bonds when Issue K comes along. There have been 10 issues in the last seven years. The first nine issues had an average life of nine months. Issue J replaced the previous issue in March 1998.
Predicting the advent of Issue K is tricky. It depends on other interest rates and the Government's need to borrow money.
Alternatively, for children who have the maximum holding, consider a near-identical National Savings product, Capital Bonds Series L. This also pays a fixed 6 per cent for five years. The maximum holding is pounds 250,000.
There are two differences. Capital Bonds are sold in units of pounds 100 which may be too high for some parents and grandparents. Secondly, the interest is taxable, although it is paid without the tax being deducted. This makes no difference to the vast majority of children since their taxable income is well within their personal tax allowance (pounds 4,195 in the current tax year).
All taxable income arising from gifts as a parent is taxed as that parent's income if such income exceeds pounds 100. But income from investment gifts from other people, including grandparents, counts as the child's income.
Apart from National Savings there is the whole world of savings accounts and investments. Much of this is available to children. Be wary of accounts aimed exclusively at children. Brightly coloured money boxes and frippery can mask indifferent interest rates.
If you want some long-term fixed returns, consider gilts that mature when your grandchildren reach 18 or 21. They are easy to buy through National Savings and can pay gross (ie without tax deducted). The income could be paid into a separate deposit account.
A taxing anxiety
I am trying to complete my tax return before the 30 September deadline. I cannot work out my own tax bill. My parents gave me pounds 20,000 last December to help buy a flat. Where does this go on the tax return?
First, that widely promoted 30 September deadline. In fact the deadline for getting your 1997-98 return to the tax office (and paying the tax) is 31 January 1999. If you are late getting the return back, even a day late, you'll be charged an automatic penalty of pounds 100.
The 30 September deadline is the date on which you have to submit a tax return if you want the Revenue to work out your tax bill for you. Miss it and the Revenue won't guarantee to work out your bill in time for the first payment on 31 January. But you can risk it and ask your tax office to work out the bill regardless of when you send back your return. If you don't get a bill, you can always make a payment based on a guesstimate of what you owe.
If you miss the 31 January payment, you will be charged interest, though you won't pay a penalty surcharge unless you still haven't paid by 28 February.
As for your gift of pounds 20,000, this does not have to be entered on your tax return. You won't have to pay tax on this gift except in certain circumstances. Inheritance tax may become due if the donor dies within seven years of making the gift.
At present, there is no tax on the first pounds 223,000 of taxable gifts of the donor's estate.
Adopting a "belt and braces" safety approach, I took plenty of pesetas on a recent holiday to Spain. I ended up not spending it all and have pounds 300-worth left over. I may return to Spain next year and can't decide whether or not it is worth keeping the cash until then.
Will the strong pound have fallen in value by 1999? Will the advent of European monetary union strengthen the pound or the peseta? These questions are best left to the City's currency experts. What is certain is that whenever you change currencies, the money changers (banks, travel agents, etc) all profit at your expense.
Unless you need the pounds 300 now, holding on to the pesetas may be the best punt.
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 firstname.lastname@example.org. Do not enclose SAEs or any documents you wish to be returned. We cannot give personal replies or guarantee to answer letters. We accept no legal responsibility for advice given.
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