Tough lessons in investments

Personal Finance Editor

WHAT IS the Inland Revenue up to? (Apart from collecting taxes, of course.) News emerged this week that a tax wheeze used by parents and grandparents to help pay school fees is to be clamped down on. And this under a Conservative government. Strange, too, that the story should appear the week of the two main teaching unions' annual conferences.

The Revenue's move followed a decision by the Charity Commission to withdraw charitable status from severaleducational trusts. By investing money through these trusts, families have been able to get tax-free returns. Without the charitable status, the profits become taxable, leaving less money to pay fees. As a result, at least 15,000 families face an increase in the cost of putting children through private education.

The Charity Commission said it had decided to withdraw the tax-favourable status from these trusts - which include those associated with the School Fees Insurance Agency (a specialist financial adviser) and insurer Sun Life - because they gave insufficient public benefit to justify the perks. The Revenue said the change in status will come into effect next April.

A separate lesson is that school fees plans bought via educational trusts, even with tax-free returns, are not that much cop. If you already have them, by all means hang on until things are clearer as there are expected to be appeals and further discussions before the tax bills are totted up or start to arrive. But for people looking at these plans now, and with five years or more before they have to start shelling out fees, a PEP might be a better bet. It should produce higher (and definitely tax-free) returns from investing directly in the stock market, albeit with higher risk. Typically with educational trust plans, your returns are fixed at the outset and are relatively low. And with a PEP, you are not obliged to spend the returns on school fees.

An alternative that is closer in risk terms to an educational trust plan, is zero dividend preference shares. However, most people would need advice with these, or to go back to investment school. No wonder the vast majority of people simply pay for their kids' education out of income as they go along.

THE financial world may seem boring, but this is no reason to throw money at faddish investments. A case in point is an ostrich breeding operation, "guaranteeing" returns of 50 per cent a year, that the Serious Fraud Office is investigating and the Department of Trade and Industry is looking to close down.

Thousands of investors paid up to tens of thousands of pounds to the Ostrich Farming Corporation for ostrich hens, based on a promise that the company would buy back chicks at pounds 400 or more each. The extent of investors' losses is not yet clear. But the warning signs they might have heeded are. One is that if this was such a good investment - try beating a guaranteed 50 per cent a year - why were the public being let in on it? Theoretically investors could have borrowed up to the hilt, put the money into the ostriches, then paid off the debt and still made a packet.

The key here is that an investment guarantee is only as strong as the backer of that guarantee. The promised returns offered by OFC appear to have depended on soaring demand for ostrich meat. Well, maybe - there's no talk of ostriches being mad, after all.

More worrying, perhaps, is that OFC was allowed to get away with advertising such investment potential because of a regulatory loophole (a point Your Money warned about on 11 February). Ostriches, because they are a commodity such as diamonds or even angora rabbits (as featured in a scheme some years ago), are not covered by the strict regulation of advertising and promotion that applies to share-based and other investments. And investors are not covered by a compensation scheme.

An action group has been set up by Stephen Whitmore at Salisbury-based solicitors Wilsons. Ring 01722-412412.

Start your day with The Independent, sign up for daily news emails
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Pricing Analyst

£30 - 35k: Guru Careers: We are seeking a Pricing Analyst to join a leading e-...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K YR1: SThree: At SThree, we like to be dif...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is a mul...

Guru Careers: C# Project Team Lead

£55 - 65k (DOE): Guru Careers: A unique opportunity for a permanent C# Develop...

Day In a Page

Fifa corruption: The 161-page dossier that exposes the organisation's dark heart

The 161-page dossier that exposes Fifa's dark heart

How did a group of corrupt officials turn football’s governing body into what was, in essence, a criminal enterprise? Chris Green and David Connett reveal all
Mediterranean migrant crisis: 'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves,' says Tripoli PM

Exclusive interview with Tripoli PM Khalifa al-Ghweil

'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves'
Raymond Chandler's Los Angeles: How the author foretold the Californian water crisis

Raymond Chandler's Los Angeles

How the author foretold the Californian water crisis
Chinese artist who posted funny image of President Xi Jinping facing five years in prison as authorities crackdown on dissent in the arts

Art attack

Chinese artist who posted funny image of President Xi Jinping facing five years in prison
Marc Jacobs is putting Cher in the limelight as the face of his latest campaign

Cher is the new face of Marc Jacobs

Alexander Fury explains why designers are turning to august stars to front their lines
Parents of six-year-old who beat leukaemia plan to climb Ben Nevis for cancer charity

'I'm climbing Ben Nevis for my daughter'

Karen Attwood's young daughter Yasmin beat cancer. Now her family is about to take on a new challenge - scaling Ben Nevis to help other children
10 best wedding gift ideas

It's that time of year again... 10 best wedding gift ideas

Forget that fancy toaster, we've gone off-list to find memorable gifts that will last a lifetime
Paul Scholes column: With the Premier League over for another year, here are my end of season awards

Paul Scholes column

With the Premier League over for another year, here are my end of season awards
Heysel disaster 30th anniversary: Liverpool have seen too much tragedy to forget fateful day in Belgium

Liverpool have seen too much tragedy to forget Heysel

Thirty years ago, 39 fans waiting to watch a European Cup final died as a result of a fatal cocktail of circumstances. Ian Herbert looks at how a club dealt with this tragedy
Amir Khan vs Chris Algieri: Khan’s audition for Floyd Mayweather may turn into a no-win situation, says Frank Warren

Khan’s audition for Mayweather may turn into a no-win situation

The Bolton fighter could be damned if he dazzles and damned if he doesn’t against Algieri, the man last seen being decked six times by Pacquiao, says Frank Warren
Blundering Tony Blair quits as Middle East peace envoy – only Israel will miss him

Blundering Blair quits as Middle East peace envoy – only Israel will miss him

For Arabs – and for Britons who lost their loved ones in his shambolic war in Iraq – his appointment was an insult, says Robert Fisk
Fifa corruption arrests: All hail the Feds for riding to football's rescue

Fifa corruption arrests

All hail the Feds for riding to football's rescue, says Ian Herbert
Isis in Syria: The Kurdish enclave still resisting the tyranny of President Assad and militant fighters

The Kurdish enclave still resisting the tyranny of Assad and Isis

In Syrian Kurdish cantons along the Turkish border, the progressive aims of the 2011 uprising are being enacted despite the war. Patrick Cockburn returns to Amuda
How I survived Cambodia's Killing Fields: Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape the US

How I survived Cambodia's Killing Fields

Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape to the US
Stephen Mangan interview: From posh buffoon to pregnant dad, the actor has quite a range

How Stephen Mangan got his range

Posh buffoon, hapless writer, pregnant dad - Mangan is certainly a versatile actor