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
Arts and Entertainment
Lou Reed distorted the truth about his upbringing, and since his death in 2013, biographers and memoirists have added to the myths
musicThe truth about Lou Reed's upbringing beyond the biographers' and memoirists' myths
Ed Miliband received a warm welcome in Chester
election 2015
Life and Style
Apple CEO Tim Cook announces the Apple Watch during an Apple special even
fashionIs the Apple Watch for you? Well, it depends if you want it for the fitness tech, or for the style
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

Ashdown Group: Training Programme Manager - City, London

£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

Day In a Page

NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

Who's monitoring the outsourced NHS services?

A report finds that private firms are not being properly assessed for their quality of care
Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

How do Greeks feel about Syriza?

Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
From Iraq to Libya and Syria: The wars that come back to haunt us

The wars that come back to haunt us

David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

Too busy to surf? Head to The Pool

A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders
Heston Blumenthal to cook up a spice odyssey for British astronaut manning the International Space Station

UK's Major Tum to blast off on a spice odyssey

Nothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
John Harrison's 'longitude' clock sets new record - 300 years on

‘Longitude’ clock sets new record - 300 years on

Greenwich horologists celebrate as it keeps to within a second of real time over a 100-day test
Fears in the US of being outgunned in the vital propaganda wars by Russia, China - and even Isis - have prompted a rethink on overseas broadcasters

Let the propaganda wars begin - again

'Accurate, objective, comprehensive': that was Voice of America's creed, but now its masters want it to promote US policy, reports Rupert Cornwell
Why Japan's incredible long-distance runners will never win the London Marathon

Japan's incredible long-distance runners

Every year, Japanese long-distance runners post some of the world's fastest times – yet, come next weekend, not a single elite competitor from the country will be at the London Marathon
Why does Tom Drury remain the greatest writer you've never heard of?

Tom Drury: The quiet American

His debut was considered one of the finest novels of the past 50 years, and he is every bit the equal of his contemporaries, Jonathan Franzen, Dave Eggers and David Foster Wallace
You should judge a person by how they peel a potato

You should judge a person by how they peel a potato

Dave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
Beige is back: The drab car colours of the 1970s are proving popular again

Beige to the future

Flares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
Bill Granger recipes: Our chef's dishes highlight the delicate essence of fresh cheeses

Bill Granger cooks with fresh cheeses

More delicate on the palate, milder, fresh cheeses can also be kinder to the waistline
Aston Villa vs Liverpool: 'This FA Cup run has been wonderful,' says veteran Shay Given

Shay Given: 'This FA Cup run has been wonderful'

The Villa keeper has been overlooked for a long time and has unhappy memories of the national stadium – but he is savouring his chance to play at Wembley
Timeless drama of Championship race in league of its own - Michael Calvin

Michael Calvin's Last Word

Timeless drama of Championship race in league of its own