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Covenants to charities ... payment cards for students ... investing for capital growth. Your everyday financial queries answered

How do covenants to charity work? JP, Cornwall

If you make a donation to charity through a covenant, the charity can reclaim tax at the basic rate of 24 per cent. For every 76p you give, the charity can reclaim 24p. So the value of a donation is effectively increased by 31 per cent. In addition, higher-rate (40 per cent) taxpayers can claim higher-rate relief of 16 per cent (16 per cent being 40 per cent less 24 per cent).

So, a higher-rate taxpayer gives pounds 76 and the charity reclaims pounds 24 in basic-rate tax making the total gift worth pounds 100. The higher-rate taxpayer can then get further relief of pounds 16 (16 per cent of pounds 100). Thus, for a net contribution of pounds 60 the charity has gained pounds l00. The 16 per cent higher- rate tax relief cannot be claimed at the time of the donation, but has to be claimed separately through your tax return.

In order to qualify for tax relief a covenant has to be set to run for more than three years. Most charities will be able to supply the necessary paperwork.

It's normal to make a 'net of basic-rate tax' covenant, where the amount you give each year never varies. Any variations in the basic rate of tax won't affect you - though they will affect the charity. When basic-rate tax fell from 25 per cent to 24 per cent last year, charities lost money. There was less tax to claim back. (A gross covenant, by contrast, means the charity receives the same money in total every year - but you would have to adjust your net payments to take account of changes in the basic rate of tax).

Covenants are not tax efficient if your top rate is 20 per cent, or if you are a non-taxpayer. Charities can still reclaim basic-rate tax of 24 per cent - but your tax inspector can bill you if you have not paid enough tax at the 24 per cent rate to pay the charity.

My son is due to start university in October. It would be helpful if he could use plastic rather than cash, but I am told he cannot have a Visa or Access card until he is 18. He won't be 18 for another year. Is there a solution? BM, Lancashire

Banks say they are not allowed to give credit to people under 18. That means loans, credit cards, debit cards or cheque guarantee cards (the last of which would allow minors to go overdrawn on a current account - unguaranteed cheques being bounceable to keep the minor out of the red). So 17-year-old students have to pay for things in notes and coins.

However both Abbey National (through its Instant Plus account) and Barclays (through its Further Education account) offer Electron cards. Electron cards are linked to the Visa/Delta system and can be used as debit (payment) cards in about 70,000 (and rising) UK outlets.

Places accepting Electron use an on-line link, meaning that the account balance is checked before a debit is approved. So it is impossible to go overdrawn. (Co-op Bank also offers an Electron card, but it can be used only for cash machine withdrawals).

Could you please advise me on the best and safest ways to invest pounds 40,000 for maximum capital growth? I would like to invest for up to five years. I am a basic-rate taxpayer. VS, Kent

The short answer is no - we cannot give specific investment advice to an individual. Under the Financial Services Act only authorised individuals and firms can give investment advice.

Even if we were authorised, we would first need to find out all about your family and financial circumstances, plans, prospects and so on. Steer clear of any adviser who does not ask enough questions. There are many ways to invest pounds 40,000, but no one way is the right way. It depends on circumstances and objectives.

Curiously, you don't need authorisation to advise on some financial products, including deposit-based accounts. It could well be that deposit- based investments - particularly tax-free Tessas - would provide part of a recommendation on where to invest safely and profitably for five years.

That said, with interest rates low, prospects for growth (through not withdrawing the interest) look fairly limited.

An authorised adviser might also recommend gilts, or corporate bonds placed in a Pep, with maturity dates of around five years. Share-based investments might be suitable too, but five years is generally the minimum period recommended for this sort of investment.

Try two or three advisers and see what they come up with. But stress your time scale, and the low risk you are prepared to take. To improve the chances of getting objective advice you may have to pay a fee. You can get a list of fee-based advisers in your area through a service run by Money Management magazine (call 0117-976 9444) .

q Write to Steve Lodge, personal finance editor, Independent on Sunday, 1 Canada Square, Canary Wharf, London E14 5DL, and include a telephone number. Do not enclose SAEs or documents that you wish to be returned. We cannot give personal replies and cannot guarantee to answer every letter. We accept no legal responsibility for advice.

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