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Covenants to charities ... selling a whole-of-life policy. Your everyday financial queries answered

Along with many people, I prefer to give to charity by covenant so that the Inland Revenue will augment my gift. But I have often been put off by the nuisance and embarrassment of having to get someone else to countersign. I don't even know who is allowed to witness such documents - could my wife do so, for example? The archaic requirement for covenants to be witnessed by a third party should be removed.

JH, Durham

Your wife can witness your signature, so long as she is at least 18. Witnessing of covenants does seem a rather unnecessary requirement. More to the point, you may feel that giving money to the charities, how much you give and which charities you favour, are private matters.

Rules, however, are rules. One possible way round this problem is to open an account with the Charities Aid Foundation (Kings Hill, West Mailing, Kent ME19 4TA, phone 01732 520000). You can pay into an account with just one covenant and you are issued with a sort of cheque book with which you can pay the charities of your choice.

The advantage to a charity of donations by covenant is that the charity can reclaim the basic rate of tax you pay. Thus, for each 76p you pay, the charity can reclaim 24p, assuming that you are at least a basic rate taxpayer. If you are not, the Inland Revenue can bill you for the tax it has paid out to the charity - so there is no reason for non-taxpayers to give to charity using a covenant. Higher rate taxpayers can also reclaim 16 per cent - the difference between their 40 per cent rate and the 24 per cent reclaimed by the charity. This tax rebate, which they reclaim on their tax return, reduces the net cost to them or, to look at it another way, allows them to increase their donation. For example, say you pay pounds 76. The charity reclaims pounds 24, making the donation worth pounds 100, but it only costs you pounds 60 because you can reclaim a further pounds 16.

Incidentally, the basic rate of tax falls to 23 per cent on 6 April. This will hit charities, as the tax they will be able to reclaim will be reduced. People who pay to charity by covenant want to consider increasing their payments to compensate for this.

I have been paying into a whole-of-life insurance policy for 25 years. I now want to raise some money. Is it possible to sell whole-of-life policies in the second-hand market?

MS, London

The market in second-hand insurance policies consists largely of endowment policies, the sort people take out to back a mortgages. You usually get poor value if you cash in an endowment policy before its maturity date. Selling in the second-hand market can bring in more money.

Some whole-of-life policies are also sellable. You can contact the trade body for those in the second-hand policy business. Send in all the details of your policy to the Association of Policy Market Makers, Holywell Centre, 1 Phipp Street, London EC2A 4PS (phone 0171 739 3949). The details will then be sent to three members of APMM selected at random, who will contact you direct. They may not be able to offer more than the current cash-in value of the policy which the insurance company will be able to quote to you.

Alternatively, you might want to consider keeping the policy going but taking out a loan secured on the policy. A loan from a life insurance company that is backed by a life policy can be one of the cheapest ways to borrow money.

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

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