How do I find a good IFA?

Question
How can I check an IFA's track record, viz whether he's any good at his job. I had one before with loads of qualifications but he was worse than useless.

How can I find out the 'going rate' for their fees and can I negotiate them down,or would this encourage them to line their own pocket some other way at my expense?Answer
Checking an independent financial adviser's (IFA's) track record is easier said than done.

As you've found out, impressive sounding qualifications are no guarantee you'll get good advice or service. And a friendly, helpful attitude could soon turn to indifference once they've won your business.

I'd start by checking them against the Financial Services Authority (FSA) register.

First run a 'Financial Services Firm Search' to check some basic details such as how long the firm has been authorised by the FSA, whether they've ever been in trouble with the regulator (disciplinary history) and the activities they're allowed to carry out. You can then run an 'Individuals Search' to check similar details for the adviser. If he or she has worked for a number of different companies, that's usually a bad sign.

There's no guarantee a long established company with loyal advisers will be any good, but they're probably doing something right to still be in business and retaining staff.

Speaking to existing clients is the best way to find out what's really beneath an adviser's polished veneer. Ideally they'll have used the adviser for a few years so can give you useful feedback on the quality of advice and service they've received. So if you know any, ask them.

I'm hoping the user reviews centre on this site will start filling up with readers' reviews of their advisers, as I think this could be a really useful resource for people in your situation. In fact I'd encourage you to leave a review of the adviser you've been unhappy with.

When it comes to qualifications then take them with a pinch of salt, but do look out for Chartered Financial Planners (CFPs). While there's no guarantee a CFP is honest or will do a good job, the qualification is fairly rigorous which suggests they're serious about their career.

IFA investment track records are difficult to obtain and measure. I'd ask the adviser to show you some sample client portfolios including performance versus a relevant benchmark, then get them to explain how they select and monitor investments. For example, how will they decide your spread of investment across different asset types? And will they get in touch to advise you if there's a detrimental fund manager change? Unless they have a credible research and monitoring process I'd be wary. Also, if the adviser has to research investments themselves as well as look after clients they're probably stretched, which doesn't bode well for either the quality of research or ongoing service.

I also suggest avoiding any adviser who heavily pushes their own product - I find it incredulous that some advisers have the nerve to do this and still call themselves independent. There was an interesting article in The Times recently which suggested that a large IFA was paying its salesmen extra bonuses to sell its own investment funds over others. The FSA should really stamp down on such practices.

As for fees, I suggest calculating roughly how much a commission based adviser would earn if they invested all your money in unit trusts. As a rule of thumb assume 3% initial commission and 0.5% trail commission, e.g. £3,000 initially and £500 a year on a £100,000 portfolio. This gives you a good benchmark against which to compare fees.

If a 'fee-based' adviser wants to charge you as a percentage of your portfolio and it's similar to your commission estimate then be wary, it's probably little more than commission in disguise.

An hourly fee should, in theory, be the most transparent type of charge. Make sure that all commission is re-invested and get a firm quote for the initial advice along with a solid estimate for how much you can expect to pay for ongoing reviews and advice. If the fees are similar to, or higher, than your commission approximation then you're probably being charged over the odds unless you're investing a reasonably small sum.

Hourly fees vary widely depending on location, expertise and experience. I've seen them range from £75 to over £300 an hour. The best way to gauge average fees in your area is to phone several advisers and ask them – you can use www.unbiased.co.uk to get a list of fee based advisers in your locality. Although, the total you end up paying is more important - if the lower rate bills more hours to complete the job you may be no better off.

Don't be afraid to haggle if you like the adviser but feel their fee is excessive. Provided they rebate all commissions and give you a firm quote in writing for the work there's little scope for them to make up the money elsewhere. They can only say no, in which case be prepared to go elsewhere if need be.

Finally, please don't think I'm trying to paint a grim picture of all financial advice. In my experience financial advisers these days are really no better or worse than other professionals such as accountants and solicitors. There's a broad mix of good, bad and ugly.

Bear the above points in mind and there's every chance you'll find a good adviser who'll do an excellent job of looking after you.

You might also find our financial advice page helpful.

Read this Q and A at http://www.candidmoney.com/questions/question128.aspx

Check your tax code

The tax man has made a monumental cock-up meaning a lot of us could end up on incorrect tax codes. Fail to correct your code and you risk paying too much tax, potentially costing you up to several thousand pounds..

It's that time of year when HMRC posts tax codes to many employees and pensioners for the forthcoming tax year - normally a pretty dull event. But thanks to a computer error hundreds of thousands of us could receive the wrong code and some might even receive too many codes, risking the loss of personal allowances. It seems you're most likely to be affected if you've changed jobs in recent years.

What are tax codes?

Tax codes are a few digits, such as 647L, that tell HMRC and your employer or pension provider how much income you're allowed to earn over the financial year before you pay tax.

Should I be worried?

If you're an employee or pensioner then yes. There's no need to panic, but you should check your tax code over the next few weeks to ensure you don't end up paying too much tax from April.

What's at stake?

End up on the wrong tax code and you could lose some, or all of your personal allowance. For someone under 65 this £6,475, so depending on how much you earn you could end up paying up to 40% of this allowance in unnecessary tax.

Is it my problem?

Yes, no matter how unfair it might seem. While HMRC is to blame for sending out some incorrect codes, it's ultimately your responsibility to ensure your tax code is correct.

What should I do?

If you're an employee or pensioner, check that your tax code for the 2010/11 tax year is correct. If you haven't received a tax code in the post then ask your employer(s) and/or pension provider(s) what code they're using for you.

How do I check my code?

You might think checking your tax code is like trying to crack the Enigma, but it's not usually too difficult.

Most tax codes are a number followed by a letter while a few will simply be two letters.

Number – when multiplied by 10 the number gives the amount of income you can earn in a year before paying income tax, i.e. your available personal allowance. Unless you have a K code in which case it's the amount that must be added to your taxable income to take account of untaxed income you've received.

Letter – the letter tells HMRC what allowance, if any, you're eligible for.

Special Codes – if you have two or more sources of income you might have a two letter code, usually in relation to a second job or pension. This tells HMRC that your allowances have been applied to your main job or pension (for which you'll have a normal code).

Letter/Special Code	What it means
L	You're eligible for the basic personal allowance.
P	You're aged 65 to 74 and eligible for the full personal allowance.
Y	You're aged 75 or over and eligible for the full personal allowance.
T	There's other items HMRC needs to review in your tax code.
K	Your untaxed income on which tax is due is greater than your allowances.
BR	All your income is taxed at the basic rate of tax (most commonly used for a second job or pension).
D0	All your income is taxed at the higher rate of tax (most commonly used for a second job or pension).
NT	No tax is to be taken from your income or pension.

Working out your tax code requires 4 steps:

1. Add up your tax allowances (for most people it's simply your personal allowance e.g. £6,475).


2. Add up any untaxed income and taxable employment benefits (let's assume £1,275).


3. Deduct the total in (2) from (1) (e.g. 6475 – 1275 = 5200).


4. Divide the balance in (3) by 10 and add the letter that suits your situation (e.g. 520L).

You can read more on the HMRC website.

What if I think it's wrong?

Contact HMRC and tell them, but wait until after 31 January as they're a bit tied up with last minute self assessment tax returns this week.

Read this article at http://www.candidmoney.com/articles/article55.aspx

Beware tax return scams

Criminals are targeting taxpayers via phoney emails as the 31 January self-assessment deadline beckons. Don't get caught, else you could end up with an empty bank account and no money to pay the taxman..

With just a handful of days to go before the online self-assessment deadline on January 31, it's a fair bet – based on past years – that the best part of two million have still to complete in their tax return. It's equally a reasonable punt that at least one million will fail to meet the cut-off date and end up with fines, interest and penalties.

But this is not about filling in your tax return. It's a warning what might happen both to those who complete their return and those who don't. You could get caught in a 'phishing' scam where you get a message saying you have a tax rebate due to you.

As most of us spend most of our money paying the other way, news of a rebate is more than welcome. However, the message does not come from HMRC as it would appear but from evil overseas-based scamsters who want to strip your bank account bare rather than give you anything.

The false message looks like this. It appears quite good – except for the English. The UK tax authorities rarely use the American word 'fiscal' and would never sign a letter with 'Best Regards'. If you receive a message like this then delete it without hesitation.

Tips for safely submitting your tax return

1. Don't open suspicious emails that appear to come from HMRC or click on links contained within them. HMRC never sends details of tax issues such as rebates by email.


2. Don't call telephone numbers contained within these emails. There have been a number of cases where the scam is operated by telephone.


3. Access the HRMC website directly by entering the address (www.hmrc.gov.uk/sa) in your browser


4. Keep your passwords secure and do not share them with anyone.


5. Make sure your anti-virus software is up to date and contains an anti-spyware component.

Read this article at http://www.candidmoney.com/articles/article54.aspx

Are PIBS worthwhile?

Question
What do you think of PIBS?

Our Financial Adviser has suggested Zopa but not mentioned PIBS which seem a good option for retirement income provided you do not put too much into one Building Society. I would really appreciate your thoughts.Answer
Permanent interest bearing shares (PIBS) are similar to corporate bonds, i.e. they're long term IOUs that pay a fixed rate of interest. The main differences are that PIBs are issued by building societies and rarely have a repayment date.

Interest is paid twice yearly (called a ‘coupon') and taxable, although it's tax-free when the PIBS are held within an individual savings account (ISA). Either way, capital gains are exempt from tax.

Although PIBs have historically been viewed as quite safe, the recent banking crisis clearly highlighted the risks. If a building society becomes insolvent then PIB holders sit at the bottom of the pile in terms of getting their money back (although above shareholders if the society has 'demutualised'). And if you do lose money it won't be covered by the Financial Services Compensation Scheme).

Even if a building society doesn't go bust, it might still suspend paying interest on PIBS if it hits financial trouble – as Northern Rock did in August 2009. And missed payments are usually gone for good, as the society isn't obliged to roll these up into future payments.

The other risk, as with all fixed interest, is that their value could fall if interest rates and/or inflation rise. While I think interest rate rises over the next year or two will be small, if any, they are likely to rise medium term. Inflation has recently risen and while likely to be fairly stable going forwards it's very difficult to predict.

Bearing in mind these potential risks, are current yields attractive?

You can view a full list of PIB yields from 22 January 2010 on the FT website here.

[Note: PIBs don't have redemption yields (which include any capital gain or loss when the PIB is repaid) as such because there's no fixed redemption date. However, some PIBS give the society the option to redeem at a certain ‘call' date, in which case a yield ‘to call' may be shown.]

Nationwide PIBS, probably viewed as one of the safer options, have ‘running' yields (i.e. income/price) of around 7% gross.

This compares to 20 year gilt yields of about 4.4%, so in the case of Nationwide you're getting an extra 2.5% or so interest a year to compensate for the additional risk over lending to the UK Government.

Building societies that are perceived to be higher risk unsurprisingly yield more. For example, Kent Reliance PIBs have running yields of around 9-10% while First Active PIBS are yielding 12.5%.

When building societies do get into financial difficulty they're usually swallowed up by a larger society rather than being left to collapse, so on this basis you might view PIBS as being a pretty good bet. However, there's no guarantee this will happen and rising interest rates and/or inflation could cause prices to fall over coming years.

A final consideration is that PIBS are not always easy to trade. This means you might find it difficult to buy and sell and could face an unappealing margin between buying and selling prices (bid/offer spread).

Overall I think current PIB yields fairly reflect the risks involved. So while PIBs aren't offering any bargains, they don't look overpriced either.

If you're looking for a long term income then by all means consider PIBS, but do appreciate the possible risks and test the waters with a stockbroker to see whether there's a market for the particular PIBS(s) you want to buy.

As an aside, Zopa is an interesting concept – basically bringing private lenders and borrowers together. The idea is that borrowers can get a better deal versus a bank loan and lenders earn more than they'd get in a savings account. Bad debts, i.e. borrowers not paying you back, are an obvious risk in the current climate, although the risks are reduced by your money being spread across 50 borrowers or more. The rates don't always work out as they'll usually favour either borrower or lender depending on demand, but it's worth a look.

Read this Q and A at http://www.candidmoney.com/questions/question126.aspx

Banks told to play fair on mortgage arrears

The FSA finally appears to be getting tough on lenders who continue to hit mortgage customers with excessive fees when they're down..

We’re all used to banks trying to make money from us wherever they can. But if you fall behind on your mortgage payments, perhaps close to losing your home, the last thing you need is the lender pouring salt onto your wounds by hitting you with unfair penalty charges. Yet that’s what most lenders have been doing for years and, despite lots of bad publicity, it’s continued.

Good news?

Well, hopefully, yes. The Financial Services Authority (FSA) has today published its plans to get tougher with lenders and ensure borrowers who are in arrears get treated more fairly. The plans are open for feedback until 30 April with the final rules intended to be introduced in June this year.

What can we expect?

The key plans are that lenders should:

1. Not levy arrears charges where a customer already has an arrangement in place to repay them by direct debit. If paid by alternative means, e.g. cheque, the lender can only charge fair admin costs.


2. Take more account of an individual’s situation before hitting them with a repossession order – i.e. stop being so heavy handed.


3. Not include arrears charges (and interest on them) within any early repayment charges.


4. Keep records of all arrears correspondence (e.g. telephone, paper, electronic) for three years after the arrears have been cleared.


5. Use arrears payments to clear the missed monthly payments, not charges.


6. Provide simpler arrears statements.

The FSA also re-iterated that its current rules already state that lenders should not profit from arrears charges, they should simply cover the admin cost of writing a letter or making a phone call – i.e. if it costs them £12 and they charge you £30 that’s £18 too much.

How much do lenders charge?

Common arrears charges (there are others) currently charged by some lenders are shown below:

Lender	1st arrears letter	2nd letter	3rd letter
Alliance & Leicester	n/a	£35	£35
Bradford & Bingley	£30	£30	£30
Halifax	£35	£35	£35
HSBC	£0	£0	£0
Lloyds TSB C&G	£10	£31	£206
Natwest	£25	£25	£25
Royal Bank of Scotland	£25	£25	£25
Santander	£40	£40	£40

All good then?

Let's hope so. As is often the case, the FSA has been too late at taking necessary action. But provided the proposals come into force in undiluted form this June, and the FSA sucessfully enforces them, today's announcment can only be a good thing.

What can you do if you think you’ve been over-charged?

If you think your lender has charged you excessive mortgage arrears fees then complain to them in writing. State that you believe their charges to be in excess of fair administrative costs, a breach of rule 12.4.1 in the Mortgages and Home Finance: Conduct of Business sourcebook (MCOB).

MCOB 12.4.1

A firm must ensure that any regulated mortgage contract that it enters into does not impose, and cannot be used to impose, a charge for arrears on a customer except where that charge is a reasonable estimate of the cost of the additional administration required as a result of the customer being in arrears.

If this gets you nowhere then take your complaint to the Financial Ombudsmen Service.

Read this article at http://www.candidmoney.com/articles/article53.aspx

Allied Dunbar won't transfer commission?

Question
In 1994 I invested jointly with wife £15,000 in Allied Dunbar Distribution Bond ( joint life - joint ownership. I used the execution only services of Credenda Limited, an IFA, to acquire the bond. I have never had or requested any advice from this company, but they still get annual renewal commision from Allied Dundar.

On several occasions since 1994 I have contacted Allied Dunbar and requested that I be permitted to change my IFA re: this ongoing investment..but they have refused and said it is not their policy to do so.

Would be interested in your advice if their action (or non action) is legal? or where do I go from here?Answer
Sadly a handful of less progressive providers, Allied Dunbar (now Zurich Life) being the most prominent, don’t allow ongoing trail commission to be transferred to another adviser. I believe Skandia can also be awkward sometimes too.

While legal, this practice seems at odds with the Financial Services Authority’s (FSA’s) mantra that financial companies should treat their customers fairly. You could try pointing this out to Zurich Life and see what they say (please let me know how you get on).

Perhaps more importantly, it would be worth reviewing whether the distribution bond is still an appropriate investment for you and your wife.

If either of you are non-taxpayers it could be positively awful, as investment bonds pay income and gains net of basic rate tax which can never be reclaimed.

Even if you are both basic rate taxpayers you would, in theory, be better off switching to a unit trust with a similar investment style, as gains will be tax-free if within your annual capital gains tax allowance.

If you are higher rate taxpayers then there might be an argument for continuing to hold the bond, it would need closer analysis. But even then it may still make sense to switch the money into individual savings accounts (ISAs) which ensure tax-free growth and interest, with no further tax on dividends – again, you could choose a unit trust that invests similarly to your existing bond.

If you decide to sell the bond then check you won’t end up paying tax – any gains will be subject to a 'top-slicing' tax calculation. You can read more on our life company investment page and use our investment bond tax calculator to estimate how much tax, if any, you’ll have to pay.

Read this Q and A at http://www.candidmoney.com/questions/question120.aspx

Which student account?

Question
I tried searching your site for student accounts but was unsuccessful, can you please advise accordingly?Answer
Banks tend to be reasonably generous to students (at least by their usual standards) in the hope that giving away some freebies and free/cheap borrowing for a few years will gain them a profitable customer for life. Nevertheless, overstep your agreed overdraft and you’ll find that steep bank charges are alive and well, even for students.

If you think your account will fall into overdraft then it’s vital you look at how large an interest-free overdraft a bank will give you and how much they’ll charge if you exceed this, both authorised (i.e. agreed in advance) and unauthorised. You’ll usually need to apply for an overdraft beyond a nominal limit, as the bank will want to gauge the likelihood you’ll repay it at some point.

Also check how long after graduating you’ll have to repay the overdraft before they charge interest. Some banks will switch you over to a graduate account straight away, usually hiking their charges and reducing the free overdraft limit in the process.

While the freebies, which range from £50 cash to a free rail card or flight, might appeal, their value could become insignificant versus future charges if you’re not careful. So never choose an account based on this alone.

So which accounts are the ‘best buys’?

If borrowing is your main priority then Halifax offers the highest potential free overdraft, up to £3,000. This remains free for up to a year after you graduate. If you need a higher overdraft and Halifax agrees then you’ll be charged 7.2% EAR on the whole amount, but go overdrawn without getting the ok first (i.e. unauthorised) and you’ll be charged a whopping 24.2% EAR, plus a monthly fee of £28 AND £20 each day you try to spend above your authorised overdraft limit. The freebies, AA and card insurance discounts are worthless.

Ulster Bank has lower borrowing limits, but fairer charges on unauthorised overdrafts. It offers free arranged overdrafts of between £1,250 and £2,000 depending on your year of study. Overstep this without permission and you’ll pay 12.68% EAR but, crucially, no monthly fees – although you could still pay £15 each day you try to spend when above your authorised overdraft limit. You can keep the account for up to a year after graduation. No freebies worth mentioning.

Smile is also worth a look. Its free overdraft ranges from £1,000 to £2,000 depending on your year of study. Authorised overdrafts above this are charged at 9.9% EAR and unauthorised at 15.9% EAR. There’s no monthly unauthorised overdraft fee, but you’ll pay £30 every time Smile declines a payment you try to make, capped at £150 per quarter. The charge is waived for up to six consecutive days provided you haven’t incurred it within the previous 366 days. You can keep the account for up to four years after opening. No freebies.

As for freebies, Santander is probably the most generous. It’ll pay you £50 to open an account, but charges 28.7% EAR plus £25 per month on unauthorised overdrafts.

The best advice I can give you is that whichever account you choose, never go above your overdraft limit without first agreeing this with the bank. Stray into an unauthorised overdraft and the costs will mount up in no time.

If you end up having some spare cash, consider opening a high interest savings account (or cash ISA if you’re a taxpayer) and transfer money over to your student current account when needed.

You might also find the information on student loans on our borrowing page helpful, along with our Student Loan Repayment and Overdraft Interest calculators.

Enjoy your student days while they last!

Read this Q and A at http://www.candidmoney.com/questions/question125.aspx

Buy European sovereign bonds?

Question
I am interested in investing in European sovereign bonds as a safe haven which also provides a hedge against sterling. Interest rates seem likely to rise,however and there may be some danger of capital depreciation.

What do you think the mid to longer term prospects are for this kind of investment? And is it advisable to purchase direct or via a unit trust?Answer
European sovereign bonds are IOUs issued by European governments, essentially the same as gilts here in the UK.

As with gilts, the two biggest risks (other than the government going bust) are rising interest rates and inflation, both of which reduce the appeal of the bonds hence their price. As a UK investor currency is also a risk (because you have to purchase the bonds in euros), although as you point out if the pound weakens against the euro this would be to your advantage (because you’d get more pounds per euro when you sell).

The European Central Bank (ECB) has held its base interest rate at 1% since May 2009 because, like the Bank of England, it’s under pressure to keep rates low to combat the impact of the credit crunch.

The ECB is bound to raise interest rates at some point, the question is when? On the one hand eurozone economic health is generally a little better than the UK, so there’s less pressure on the ECB to keep rates pinned at current levels. But European inflation is lower than the UK too (0.9% over 2009 vs 2.9% in the UK), which means less pressure to raise rates. I’d take a guess than the ECB base rate will stay more or less where it is for at least another year.

Nevertheless, I wouldn’t be rushing to buy either European sovereign bonds or gilts at present. Even if interest rates remain low for the time being, medium to longer term they’ll inevitably rise. The same goes for inflation, which has already started to rise of late.

But if you do want to invest, I share your view that European sovereign bonds look more appealing than gilts, especially if you believe the pound will weaken versus the euro. The yields are broadly comparable and the potential threats to bond prices appear to be lower in Europe.

A simple and cost effective way to get exposure would be via exchange traded funds (ETFs). For example, iShares has a number of ETFs listed on the London Stock Exchange that track European sovereign bonds (they mainly vary re: redemption dates of underlying bonds). Annual costs are around 0.2%, which is far lower than you’d pay on a unit trust.

You can buy ETFs through online stockbrokers, expect to pay dealing costs of about £10 to buy and sell. There’s no stamp duty.

Read this Q and A at http://www.candidmoney.com/questions/question119.aspx

Best home for my savings now I've retired?

Question
I have just retired and would line to invest £30k in a no risk no fee account.

What are your thoughts on the best available account to accommodate all of these wishes?Answer
No risk means sticking to cash, so it’s a case of finding the best savings account deals.

If you’re a taxpayer it would make sense to use your cash Individual Savings Account (ISA) allowance. You can contribute up to £5,100 before 6 April and the same again afterwards. If relevant, your spouse could also use their allowance too, a potential £20,400 contribution during the current tax year and next.

The main advantage of holding savings within cash ISAs is tax-free interest. A further benefit is that the interest doesn’t have to be entered on a tax return, so it won’t affect your age-related personal income tax allowance.

Whether you use a cash ISA or conventional savings account, your key decision will be choosing between a variable or fixed rate of interest.

The ‘best buy’ accounts with 4-5 year fixed rates currently pay around 5% a year gross, which looks attractive versus variable rates which are nearer 3%. Variable rates will probably rise over the next few years, but I think the chances of a significant rise are slim. It looks like our economy is going to struggle for a while yet so there’s a lot of pressure on the Bank of England not to raise interest rates, despite rising inflation (which is largely due to higher oil prices rather than us all driving up prices by spending more).

On balance you might want to split your savings between fixed and variable rates, which has the added advantage of keeping some of your money on easy access in case you need it.

Current ‘best buys’ include (rates shown gross AER):

Easy Access/Notice Variable Rate
ISA – Standard Life Direct Cash ISA 2.65%
ISA – Manchester Building Society 60 day notice Cash ISA 3.01% (includes 1% bonus for 1st 12 months)

Coventry Building Society 1st Class Postal Account 3.30% (includes 1.30% bonus for 1st year, up to 4 withdrawals a year of a minimum £1,000)
Scottish Widows Bank Internet Saver Account 3.01% (includes 1% bonus for 1st 12 months)

Fixed Rate
ISA - Leeds Building Society 5 year Fixed Rate ISA 4.60%
ISA – Halifax 4 year Fixed Rate ISA Saver 4.25%

State Bank of India 5 year Fixed Rate Bond 5.25%
Birmingham Midshires 4 Year Fixed Rate Bond 5.00%

I think it’s nothing short of scandalous that banks and building societies are generally paying lower rates on their fixed rate cash ISAs than their non-ISA equivalents, but annoyingly that’s the way it is at present. If you’re a taxpayer you’ll still end up better off using an ISA in the above examples, but not by as much as I think would be fair.

Some of the highest variable rates include bonuses first the first year or so. It’s fine to take advantage of these but be prepared to move elsewhere when the bonus ends to ensure you continue receiving competitive rate.

If you don’t want the hassle of having to monitor your savings to ensure you’re getting a competitive rate then take a look at the Investec High 5 Account. It pays an average of the top 5 savings rates (as measured by Moneyfacts) with a current rate of 3.32% (I’d expect this to fall shortly as the average is calculated including an Ulster Bank rate of 3.6% which is no longer available). However, it requires a £25,000 minimum deposit and three months notice for withdrawals. It’s also not available as a cash ISA. You can read or full review here.

Good luck with whatever you decide and enjoy retirement!

Read this Q and A at http://www.candidmoney.com/questions/question118.aspx

GIB income on my tax return?

Question
I have a GIB from Abbey (Phoenix insurance) and I am filling in my self assessment on line. I have detailed all the answers to the various building society accounts and I have not found anywhere to put the income received from the GIB.

I have tried phoning tax people and they do not know answer but said they would ring back but they never did. I have visited by local tax office twice but no help. Very pleasant people but unable to help in any specific way. I am 78 years old so that perhaps explains why I am so thick.Answer
Sounds like it’s the tax office being thick, not you!

If the income from your guaranteed income bond (GIB) is less than 5% each year then you don’t have to include it on your tax return until the year of maturity.

The reason for this is the special way that insurance company investment bonds are taxed. You can withdraw up to 5% of your original investment each year without having to pay any tax, or include it on your tax return – hence it won’t affect your age-related personal income tax allowance.

But the withdrawals are not tax-free. They’ve already been taxed at basic rate and, depending on your overall income, you may have to pay additional tax on the sum of the 5% withdrawals plus any gains when the investment matures – using a calculation called ‘top-slicing’. Worse still, the overall sum is notionally added to your income, which could affect your age-related allowance even if you have no additional tax to pay on the profit.

If the income is greater than 5% then the insurer should send you a ‘chargeable event’ certificate for the excess ‘gain’. The gain details will need to be entered on your tax return in boxes 4-7 in the ‘Other UK Income’ section of the ‘Additional Information’ section (form SA101) of the tax return.

Provided you’re a basic rate taxpayer then you probably won’t have any extra tax to pay on the excess unless it pushes into the higher rate band. Higher rate taxpayers have to pay the difference, currently 20%.

If you want to read more about top-slicing (drink a strong coffee first to keep you awake!) then read our Guaranteed Income Bond page.

You could also use our GIB Tax calculator to take care of all the number crunching.

Read this Q and A at http://www.candidmoney.com/questions/question117.aspx

Can I offset losses on shares?

Question
Is it beneficial for my wife to sell her portfolio of shares to me and thus offset her loss (currently around 13k GBP) against tax paid on her part time earnings?Answer
Gains and losses on shares fall under the capital gains tax regime, not income tax. This means your wife can’t unfortunately offset any losses against her earnings.

For what it’s worth she could sell the shares to realise the loss, which can then be offset against gains in future years. To do this she must notify HMRC about the loss (usually via a tax return, within five years after the 31 January following the end of the tax year in which the loss arose).

However, I don’t think that makes much sense in her current position unless she wants to sell the shares anyway. Assuming she holds onto them the current loss will automatically offset gains as the shares (hopefully) rise in price. Plus, if she ends up in profit, gains can be offset against her annual capital gains tax allowance, currently £10,100.

If the shares do end up making bumper profits one day then it might be wise for your wife to transfer some of the shares to you (you don’t need to sell them, just use a stock transfer form), so that you can both use your annual allowances to avoid capital gains tax .

You don’t have to pay capital gains tax when passing assets (e.g. shares) to a husband, wife or civil partner. So if you’re worried that selling will trigger gains above your allowance it’s a good idea to first spread the investment between you, so you can use both allowances when you sell.

Read this Q and A at http://www.candidmoney.com/questions/question116.aspx

Sell shares to avoid tax?

Question
I have shares with a current value of £50,000 invested across 6 companies. I shall be 74 years of age this year and my wife, who is named on the majority of the shares, will 76 this year. We own our house with an approx value of £220,000.

Should we be considering selling some of the shares to avoid Capital Gains Tax when we pass away? We are leaving our estate to 1 son and 1 daughter.Answer
As things stand at the moment none of your family would appear be troubled by capital gains tax or inheritance tax when you or your wife passes away.

Any capital gains on your shares will die with you. If you leave the shares to your children they would be treated as having acquired them at the market price on the date of death. Should your children subsequently sell then this would be the purchase price used when calculating the capital gain for tax purposes, not the price you originally paid.

Both you and your wife currently enjoy inheritance tax exemptions of £325,000 each. If you leave everything to each other on first death (which would be exempt from inheritance tax) then the unused allowance can be rolled into the other on the second death, giving an overall allowance of £650,000 – ample for your assets. So, unless there’s a major change, inheritance tax is unlikely to be a threat.

Nevertheless, it might still make sense to keep capital gains tax at bay while you’re still alive. If you or your wife suddenly needs to sell the shares for some reason, you don’t want to be landed with a tax bill. You can both realise gains of up to £10,100 each before 6 April and the same amount thereafter, more than enough I should imagine to strip out the gains in your portfolio.

To realise a gain you’ll have to sell shares (and wait 30 days if you wish to repurchase shares in the same company). If you decide to do this make sure you shop around for a cheap stockbroking deal, the going rate seems to be about £20 for certificate trades and £10 if electronic. If you originally purchased the shares before 31 March 1982 then you should treat the purchase price as their value on that day, else it'll be the amount you paid for them.

As an aside, you might consider reducing investment risk by spreading your money across more than six companies, perhaps by moving some money into investment funds. You’ll have to pay fund management charges, but you might view this as being worthwhile for the extra diversification it could bring.

Read this Q and A at http://www.candidmoney.com/questions/question115.aspx

ETFs a good idea?

Question
Is it a good idea to invest in ETFs and how do you pick them?Answer
Exchange Traded Funds (ETFs) are a type of investment fund traded on the stockmarket that usually aim to track an index.

When deciding whether to invest in ETFs your first question should be ‘is a tracker the best option?’ If yes, you’ll then need to decide if an ETF is a better choice than alternatives such as a unit trust.

Rather than cover the pros and cons of trackers in full detail here, I’ll suggest you take a look at our trackers page. But in summary, trackers tend to work well in some markets and less well in others.

If you want to invest in a tracker then is an ETF a good idea?

The big advantage of ETFs over unit trusts is that they cover a significantly wider range of indices. Whereas unit trust trackers only offer exposure to a few major stockmarkets, ETFs provide access to many more regional and specialist markets, as well as other assets such as gilts, bonds, commodities and property. You could feasibly build a diverse portfolio of trackers using ETFs, whereas you’d really struggle with unit trusts.

ETFs also have a reputation for being cheap. However, while this is usually true of those tracking major markets, it’s not uncommon for more specialist ETFs to have total annual charges (i.e. total expense ratios) of around 0.75% - lower than actively managed funds, but not by that much once you strip out sales commissions on the latter.

You’ll need to pay stockbroker dealing charges when buying and selling ETFs. While this is only around £10 via online brokers, it does make monthly saving a non-starter for most. Unlike shares and unit trusts, ETFs are exempt from stamp duty.

If you’re a particularly active trader then you’ll appreciate that ETFs offer real-time pricing, i.e. you can sell at the prevailing market price any time during trading day. By comparison unit trusts tend to be priced just once a day, although this is hardly a big issue when investing longer term.

There’s no right or wrong when comparing ETFs and unit trust trackers, your decision will likely rest on availability for the desired index and cost.

Start by deciding on the area or asset you’d like to invest in, e.g. the UK stockmarket, bonds or gold. You can then look at the various ETFs/unit trusts available and compare the index tracked and costs, as well as how successfully the fund has mirrored the index.

Remember that indices can vary quite markedly, so make sure you know what you’re getting. For example, is the index dominated by certain companies and/or sectors? If you’re not careful you could end up taking a bigger bet than you realise.

While most ETFs are pretty good at accurately tracking an index, there are exceptions. The offenders are usually ETFs that track commodities where it’s not practical for the fund to actually own the asset, e.g. oil and corn. The fund will likely buy ‘futures’ contracts each month to try and track the commodity price, but may well underperform due to additional costs built into the price of each month’s futures (called ‘contango’) – read more about this on our commodities page.

Overall I think ETFs are a great innovation and worthwhile for many investors. However, they’re only as good as the index tracked, so choose very carefully and don’t always assume they’re a better choice than actively managed funds.

A good source for ETF and unit trust performance figures is Trustnet.

ETF providers include: iShares, ETF Securities, Lyxor and db x-trackers.

Read this Q and A at http://www.candidmoney.com/questions/question114.aspx

Inflation hits savers

Today’s announcement that the Retail Price Index rose by 2.4% over 2009 means that even most ‘best buy’ savings accounts have failed to keep up with inflation for taxpayers.

Annual inflation, as measured by the Retail Price Index (RPI), rose from 0.3% in November 2009 to 2.4% in December, the biggest monthly increase seen since July 1979 (when the rate increased from 11.4% to 15.6%).

The Consumer Price Index (CPI) also rose, to 2.9%, although as this measure excludes housing costs such as mortgage interest and council tax it’s a less relevant figure for most of us than RPI, which includes them.

Why has inflation risen?

The bulk of this rise is largely due to oil prices and other items such as clothing costing more than they did a year ago.

Should you be worried?

Yes...if inflation remains higher than savings interest rates longer term.

Based on Bank of England figures, the average branch-based easy access savings account paid just 0.18% over 2009, meaning a basic rate taxpayer has typically seen the buying power of their savings fall by more than 2.2% over the year. If these rates persist then £1,000 of savings would buy just £892 of goods and services after 5 years and £796 after 10.

Even ‘best buy’ accounts have struggled to keep pace. If annual RPI continues to rise at 2.4% then a basic rate taxpayer needs to earn 3% before tax and a higher rate taxpayer 4% just to keep up with inflation.

The current best buy easy access savings account is Coventry BS First Class Postal Savings Account which pays 3.30%, including a 1.3% bonus for the first year. However, other than Ulster Bank at 3.10% and Scottish Widows Bank at 3.01% all other easy access accounts are currently paying less than 3% gross.

Will inflation remain a threat?

The exceptional events that contributed heavily to lower inflation figures over much of 2009, namely low oil prices and the VAT cut, are unlikely to be repeated in the near term. I think inflation will likely remain a problem for savers over the course of this year, especially as interest rates are unlikely to rise by much, if anything. But beyond that is very difficult to predict.

What can I do?

If you’re a taxpayer then holding your savings in cash ISAs may offer some respite, as interest is paid tax-free. Those under 50 can save up to £3,600 before 6 April 2010 and up to £5,100 thereafter, while those aged 50 and over already enjoy a £5,100 annual cash ISA allowance. The Standard Life Direct Access Cash ISA currently pays the highest rate on £1 at 2.65%, although if you’re saving £3,600 you can enjoy 3% with the Teachers Building Society. Find out more about cash ISAs on our cash ISAs page.

If you don’t mind tying up your cash then take a look at NS&I Index-Linked Certificates, which pay a fixed rate of interest over and above inflation. Both the 3 year (19th Issue) and 5 year (46th Issue) certificates currently pay RPI plus 1%, i.e. 3.4%, tax-free. This is equivalent to 4.25% gross for basic rate taxpayers and 5.67% for higher rate taxpayers. Of course, inflation could move either way going forwards, but even if it does become negative once more the Certificates will still pay 1% tax-free, better than a typical savings account. Read more about them on our NS&I page.

Is higher inflation good news for borrowers?

Yes, because rising prices reduce the value of their debt in real terms. For example, if you have a 20 year interest only mortgage of £150,000 and inflation is 2%, then the ‘real’ value of your debt at the end of the term would be just £100,141.

I’m sure the Government is secretly pining for higher inflation for this very reason. It would welcome higher inflation to reduce the real value of its £844 billion debt, provided it doesn’t jeopardise our economic recovery.

Tools

You can check the impact of inflation on your savings using our Savings vs Inflation and How Much? savings calculators.

Tax return timescales for a new business?

Question
Is it true that new sole trader businesses have two years to complete their tax return?Answer
Not as such, although depending on when you start the business you could have well over a year before your tax return is due and any tax paid.

Sole traders must declare and pay tax on their business profits via the self-employed section of the self-assessment tax return. The tax return must be completed by 31 October following the end of the tax year if a paper version, or 31 January if online.

So, suppose you start trading on 6 April 2010, your first tax return (for the 2010/11 tax year) will cover from 6 April 2010 until 5 April 2011. This return must be submitted by 31 October 2011 or 31 January 2012 depending on whether it’s paper or online.

The self-employed must usually pay any income tax owed in instalments, on 31 January and 31 July. The 31 January payment is during the tax year concerned and usually equal to half of your previous year’s tax bill, it’s called a payment ‘on account’. A second payment, usually the same amount, is then due on 31 July that year. The following January 31 payment will then include a balancing payment (or refund) based on your actual profits, as well as the next payment on account.

However, as a new sole trader you won’t have paid tax in the previous year so your payments on account will be zero (payments on account only apply if your previous year tax bill was at least £1,000).

To carry on our above example, you won’t have to pay tax on 31 January 2011 or 31 July 2011, just a single payment by January 31 2012 (for the 2010/11 tax year).

If you set up a limited company your business will then come under the corporation tax regime, which has a different set of timescales based on your company’s financial year.

For example, if you set up a company now with a financial year end of 28 February, your first accounting period would end 28 February 2011. Your company would have to pay corporation tax for this period by 31 November 2011 (9 months after the end of the accounting period) and file a company tax return by 28 February 2012 (12 months after the end of the accounting period).

Read this Q and A at http://www.candidmoney.com/questions/question113.aspx

Tax Return Tips

If, like me, you’ve yet to submit your 2008/09 self-assessment tax return, then get a move on to avoid a possible £100 fine and interest on unpaid tax.

And, if you’d rather watch paint dry, just remember that completing your tax return provides an opportunity to claw back money from the taxman by claiming for legitimate reliefs, allowances and expenses.

So, for my benefit as much as yours, I’ve put together some self-assessment reminders and tips.

Deadline

The deadline for filing a 2008/09 paper tax return (covering 6 April 2008 to 5 April 2009) was 31 October 2009. Your only option now is to file online via the HMRC website by midnight on Sunday 31 January 2010.

Who needs to complete one?

If you’re an employee who has no other sources of income and pays tax through PAYE then probably not. If you fall into one or more of the categories below (or HMRC has sent you a tax return) then very likely yes:

Self employed. Company director. Minister of religion. Receipt of rental income from land or property. Annual gross income from savings/investments of £10,000 or more. Claim against tax for expenses or professional subscriptions of £2,500 or more.

Receipt of untaxed income which cannot be handled via PAYE. Receipt of foreign taxable income. Receipt of income from a trust. Annual income of £100,000 or more. Owe tax at the end of the tax year that cannot be collected via PAYE the following year. Selling shares or other investments at a profit.

You can find out more here.

What you need to do to file online

To file your tax return online you’ll need a Government Gateway account that’s activated for self-assessment. If you’ve done so before you simply need to dig out your Gateway user id and password then login at https://online.hmrc.gov.uk/self-assessment/. If you’ve forgotten your user id or password you can retrieve either online. If you’ve forgotten both call the HMRC online services helpdesk on 0161 930 8445.

If you don’t have a Government Gateway account and/or haven’t activated it for self-assessment then you should register via the same link above by 21 January to allow time for your self- assessment activation code to be sent by post. When registering you’ll need your Unique Taxpayer Reference (UTR) and either your national insurance number or postcode.

Completing the return

Although you’ll complete your tax return online, you might want to look at the paper version beforehand to familiarise yourself with the various sections. The accompanying help sheets can also be useful – view a full list of forms and help sheets here.

I also find it much easier to prepare all the figures beforehand, e.g. on a spreadsheet or using accounting software, so that by the time you complete the form online you’re simply entering figures in boxes.

If you’ll be entering blanks where you previously entered figures, perhaps due to a change in circumstance, it’s worth explaining why in the ‘additional notes’ boxes so as not to arouse HMRC’s suspicions.

Plus, don’t forget you’re allowed to round down income and round up expenses entered on the return to the nearest Pound (e.g. £80.90 of income becomes £80 and £21.10 of expenses becomes £22). Do this wisely and you could save a few extra Pounds.

Once completed, print a copy of your tax return for your records.

If you’re employed (i.e. PAYE)

Check that your employer has already deducted any tax owed on benefits (e.g. company car and medical insurance) from your salary; otherwise you’ll likely need to declare and pay the tax via a tax return.

You might be able to claim back some tax if you’ve incurred expenses ‘wholly, exclusively and necessarily’ in the performance of your employment which haven’t been reimbursed by your employer. In practice this means that you can't claim for a new suit or travelling to the office, but you probably can claim for items such as professional subscriptions, travel/subsistence away from the office and the proportion of your mobile phone bill used for work (but only if your employer doesn’t reimburse you).

Also, if you’ve stopped working or changed employer during the tax year double check you’ve not paid too much or little tax via PAYE using your P45 and/or P60 forms. The last time I did this I claimed back over £1,000!

If you’re self-employed

In general you can deduct all costs incurred for the ‘sole purpose of earning business profits’ from your turnover (excluding entertainment). This includes items such as goods purchased for resale, rental of business premises, vehicle costs and electricity/telephone.

Where the costs relate to both private and business use, e.g. working from home and using a car for business and domestic purposes, then you’ll need to split the costs between business and private use – you can only deduct the business costs. HMRC has a guide here.

Capital Expenses (both self-employed & employees)

If you buy 'capital' items for work which have a life of several years, e.g. a computer or machinery, you can claim a proportion of the cost each year over a period of time using 'capital allowances'. But, provided the total expenditure is £50,000 or less the cost can be fully claimed in the year of purchase under the ‘Annual Investment Allowance’ (with a few exceptions, primarily cars).

Although less common for employees, you might have a clam if you have to buy equipment to carry out your job and your employer doesn’t reimburse you. More details here here.

Don’t forget to re-claim

Failing to claim the allowances, reliefs and expenses you’re due is the same as giving the taxman cash straight from your pocket. So claim as much as you’re allowed. In addition to those mentioned above, common reliefs and allowances include:

Pension contributions – higher rate taxpayers can reclaim additional higher rate tax relief on their pension contributions (e.g. if you contributed £800, basic rate tax relief of £200 will have automatically been given and you can claim a further £200). Employees should check this hasn’t already happened via PAYE.

Charitable donations – under the Gift Aid scheme higher rate taxpayers can reclaim tax equal to 25% of the contributions made (e.g. if you contributed £100 you can claim £25 – the charity will have already reclaimed the basic rate tax relief).

Venture Capital Trusts/Enterprise Investment Schemes – you can get an income tax rebate of 30% (VCTs) or 20% (EIS) on your investment provided you meet the qualifying rules.

Note re: the above rebates – you can’t reclaim more tax than you’ve actually paid/owe!

Capital Gains Tax – remember you have an allowance of £9,600 to offset against gains you made during 2008/09.

Property rental – if you rent property remember to claim for allowable expenses, including mortgage interest and 10% of rent as a ‘wear and tear’ allowance. There’s lots of helpful information here.

Paying tax

Once you’ve worked how much tax, if any, you owe, you must pay HMRC by 31 January 2010. You can make payment by direct debit, internet/telephone bank transfer, cheque, bank Giro or debit/credit card (through Billpay with a 1.25% fee for credit cards).

What happens if you’re too late?

Fail to submit your tax return by 31 January and you’ll be slapped with an automatic £100 fine, with a further £100 fine on 31 July if your tax return is still outstanding. HMRC can also levy a daily fine of up to £60 if you persistently fail to submit your return.

However, the penalty is normally limited to the tax you owe on 31 January. So, provided you don’t owe tax, HMRC shouldn’t charge you for filing a late tax return. This means you could avoid a fine by paying a liberal estimate of the tax you owe by 31 January and subsequently reclaiming any surplus once you’ve submitted your return. HMRC currently pays 0.5% interest on any credit.

If you don’t submit a return then HMRC might send a request for payment, called a ‘determination’, which estimates the tax you owe. The only way to change the amount owed to the correct figure is to send in a tax return.

While the taxman won’t accept your dog eating your paperwork as a valid excuse for filing late, they should be more understanding if you have a genuine excuse such as losing documents through fire/theft or a serious illness. More details here.

Interest on tax owed

If you haven’t paid the tax you owed on 31 January by 28 February then HMRC will levy a 5% surcharge, followed by a further 5% on 31 July on any tax still owed. This is on top of interest at 3% on any balance owed from 31 January.

Keeping records

You should keep all paperwork relating to your tax return, including proof of income and expenses, in case HMRC decides to take a closer look. Individuals and directors must keep these records for at least 1 year 10 months after the end of the tax year they relate to and the self-employed for at least 5 years 10 months. Failing to do so risks a £3,000 fine.

Are there simpler alternatives?

If you fall into the category of people required to complete a tax return (see rules above), then no. However, if you simply want to reclaim tax you’ve overpaid you may not need to do so via a tax return, see here for more details. For example, you reclaim excess tax paid on your savings using HMRC form R40.

Right, better get to work on my own return. If you have any tips or think of anything I’ve missed above please do leave a comment below. And, if you’ve still to complete your tax return, good luck!

You can read more about income tax in general on our income tax page.

Contract out of S2P/SERPS?

Question
My question is regarding the SERPS pension. I'm not sure whether i am contracted in or out, or which is best.

I am 56 years old and in full time employment and i do not pay into a pension scheme. How do i find out which is best for me? Hope you can help.

Answer
Let’s start with the basics. The State Earnings Related Pension Scheme (SERPS) and the State Second Pension (S2P), which replaced SERPs on 6 April 2002, are available only to employees and intended as a top-up to the basic state pension.

The amount of extra pension you receive is based on your national insurance contribution history and earnings over your working life. The formula varies between SERPS and S2P, but basically takes your earnings between lower and upper limits then increases them in-line with national average earnings until your retirement date before multiplying by certain factors and dividing by the number of years you’ve worked.

If you decide to contract out then the Government instead makes a payment into a personal or stakeholder pension of your choice, the amount being based on your age and earnings. Rather than cover all the rates here, you can find full details on our state pension page – click the ‘show more details about contracting out of S2P’ link.

The advantage of contracting out is that it protects you from any future changes the Government might make to the way S2P benefits are calculated. Past changes that reduced SERPs benefits highlight this risk. Once you have hard cash in a contracted out pension it’s more difficult for the Government to meddle with it.

However the downside, and it’s a potentially big one, is that the amount of contracted out pension income you receive in retirement will depend on investment performance. If your pension fund performs badly you could end up far worse off than you would have been under S2P. Future annuity rates will also affect how much pension you receive.

Trying to work out whether it’s better to contract in or out is a minefield, because no-one knows what changes the Government might make in future and investment performance is hard to predict. Most financial advisers have given up making S2P recommendations fearing they’ll get slapped with a mis-selling fine years down the line for not anticipating the unknown.

It’s a silly, over complicated system that could benefit from an overhaul and a massive dose of common sense.

Meanwhile, what should you do? Unless you belong to a final salary pension scheme where your employer might have automatically contracted you out (don’t worry if this is the case, they still have to provide benefits similar to S2P) then it sounds likely you’re contracted in. Given you’ve only got 9 years until you reach state pension age (65 - male), it probably makes sense to remain that way. I don’t think the risks of contracting out, in the hope of earning slightly more than you’d otherwise get, are worthwhile.

To find out where you stand I’d suggest requesting a state pension forecast, which includes SERPS and S2P. It’s free. You can find more details and apply here http://www.direct.gov.uk/en/Pensionsandretirementplanning/StatePension/StatePensionforecast/DG_10014008.

Read this Q and A at http://www.candidmoney.com/questions/question112.aspx

Halifax Reward Current Account

Halifax has made a lot of noise about this current account, which pays you £5 every month if you pay in at least £1,000.

Overdraft interest has also been replaced by straightforward fixed charges: £1 a day for authorised overdrafts up to £2,500 and £2 a day for overdrafts above this. Unauthorised overdrafts are charged at £5 a day.

The account also offers a visa debit card and you can withdraw up to £300 a day from cash machines.

However, use the debit card to spend or withdraw cash overseas and you’ll face charges that are nothing short of daylight robbery. You’ll be charged 2.75% and £1.50 per transaction – spending the equivalent of £10 will cost you at least £11.77!

Overseas fees notwithstanding, Halifax does deserve a pat on the back for simplifying charges. But how does the Reward Current Account compare to those with more conventional interest and charging?

The £5 monthly payment is after basic rate tax has been deducted, so it’s worth £6.25 gross. If we assume an average £1,000 account balance the equivalent annual interest rate is 7.5% gross – very attractive versus the competition. On lower average balances the equivalent rate looks more appealing still, but the equivalent gross rate for a £5,000 average balance is just 1.5%, nothing to write home about.

Replacing overdraft interest with a fixed daily rate seems a neat idea, but it could leave you a lot worse off compared to a conventional current account if you stray into an authorised overdraft.

Assuming you receive the £5 monthly payments then the net the equivalent annual overdraft rate, in simple terms (because there’s no compounding with a flat daily fee), is shown below for various balances:

Overdraft
(authorised) Equivalent Annual Rate
(simple interest)
£100 305%
£1,000 30.5%
£2,500 12.2%
£3,000 22.3%
£5,000 13.4%

Given the majority of current accounts don’t charge fees for authorised overdrafts, just interest at around 10-20%, the Halifax Reward Current Account looks very poor value by comparison for both smaller overdraft balances and those just above £2,500.

The unauthorised overdraft charge of £5 a day looks steep, but is similar to that charged by most banks – a reminder to avoid unauthorised overdrafts wherever possible.

The overall appeal of this account really depends on your circumstances. If you’ll pay in at least £1,000 every month, have a low average balance, avoid overdrafts and rarely spend overseas then it’s a very good deal. For anyone else it’ll range between ok and downright awful, being worst value for those who consistently have a small authorised overdraft and/or spend money overseas.

Beware the probate rip-off

You don’t need to poll too many to conclude that the banks are probably the most hated of all UK organisations - thanks to a history of poor service and excessive charges.

And even when you’ve left this mortal coil, they don’t let go. In fact, some of their best tricks are kept for when you’re dead (and can do nothing about it!).

Take probate – that’s the legal process for sorting out a will and ensuring that all those named in it get their fair share. It’s a must if the estate is worth more than a nominal £5,000.

Banks and solicitors are usually keen to muscle in and handle probate, as it’s a very lucrative business. It’s not uncommon for some banks to charge 4% plus VAT, even on on simple to administer estates – potentially resulting in a five figure bill.

I recently came across the example of bank charging almost £50,000 in probate fees where a Swansea man had died leaving £1m in a savings account with that bank. It was a straightforward case of paying the inheritance tax and dividing what was left equally between six grandchildren. Had the deceased chosen a cheaper executor the fees may have been less than £5,000. Cheaper still, he could have chosen a trusted friend(s) or relative(s) capable of handling probate – effectively free.

If you ask a third party such as a bank or solicitor to write your will, give explicit instructions as to who will be the executor of your estate. Fail to do this and they’ll likely include themselves – opening the door for pocketing fat probate fees when you die. Few relatives are in the mood for haggling over a probate bill when a loved one has just passed away, making them easy prey for unscrupulous probate professionals - especially as it can be difficult to change executors after death.

So who should you name as the executor of your estate? The cheapest option would be a close relative or friend you can trust to complete the necessary tasks and paperwork – around 30% do this. On a straightforward estate this is likely to take around 20-30 hours of their time over a period of several months. If professional help is needed they can then shop around for a fair deal – at least your estate won’t be locked into using a potentially expensive probate firm from the outset.

The Probate Service is usually helpful and most people comfortable with forms and figures should be capable of handling the process. You can find information on the Probate Service website.

If you decide you’d rather appoint a probate professional as the executor of your will, then shop around to ensure a competitive fee. As you’ll find out, fees can vary enormously. Spotting a gap in the market, a firm called Final Duties recently launched a probate ‘broking’ service where, for a fee of £295, they’ll search the market for a competitive quote.

Final duties also offer the ability to ‘pre-pay’ your probate fees. What happens is that you set up the deal while you are still alive, pay for it – the cash goes into a special trust fund – and then you are assured that your last testament will be processed by a specialist solicitor.

At the same time, the pre-payment guarantees the price (unless the estate becomes substantially more complex) so there will be no inflationary or other increases – although you will obviously lose out on the interest or investment returns you could have otherwise earned on the money you hand over.

Unlike funeral costs, probate fees can’t be set off against what you leave to reduce any inheritance tax your estate might owe. Pre-paying probate fees overcomes this - the money leaves your estate while you’re still alive.

If you have already written a will then check who it names as the executor and amend, if necessary. Also don’t be afraid to ask appropriate family or friends whether they would consider being your executor. Fail to do either and you could end up hitting your loved ones with a significantly bigger bill than you need to.

TIP 1 - Make sure you have a valid will and that is rewritten as circumstances change.
TIP 2 - Married couples and those in civil partnerships may find it best to leave everything to each other to reduce inheritance tax.
TIP 3 - Make sure executors are not “professionals” such as banks, lawyers, will-writers or accountants. If you leave them in, you could be handing them an open cheque on your estate. Rewrite existing wills to exclude them –this can be done at any time before death.

Less than standard mortgage rates

Once upon a time Standard Variable Mortgage Rates (SVRs) were just that – pretty much the same across all lenders, give or take a percent. But the current difference between the highest and lowest SVRs is nearly 4%, not insignificant given the Bank of England Base Rate remains at 0.5%.

As a reminder, the SVR is a lender’s default mortgage rate which usually applies after a fixed rate or discount has come to an end on your mortgage. In the past it’s almost always been worth shopping around for a better deal the minute a SVR kicks in.

While that remains the case for many, in the current climate it’s not quite as straightforward. Some SVRs are very competitive, while others are shockingly high. And a few lenders have been increasing their SVRs despite Base Rate being stuck at 0.5% since March 2009.

If you have a mortgage and you’re paying the SVR then check the rate with your lender (it should be on their website). The table below shows some of the highest and lowest SVRs.

Lowest SVRs Highest SVRs
Lender SVR Lender SVR
Cheltenham & Gloucester 2.50% Chesham BS 6.45%
Cheshire BS 2.50% Nottingham BS 5.99%
Derbyshire BS 2.50% Accord 5.99%
Lloyds TSB 2.50% Newcastle BS 5.99%
Nationwide BS* 2.50%* Stroud & Swindon BS 5.99%

Source: Moneyfacts 6/01/10. * Note: only applies to mortgages taken out on or before 29/4/09

If you’re fortunate enough to be on a 2.5% SVR then chances are you’re best off staying put, as this is very competitive versus other mortgages on the market at present. But you might find yourself paying rather more than this, for example a whopping 6.45% if your mortgage is with Chesham Building society.

Don’t underestimate how much extra an over the top rate could cost you. On a £100,000 repayment mortgage over 10 years interest would total £13,124 at 2.5% soaring to £35,952 at 6.45% - over £20,000 difference!

If you’re on an uncompetitive SVR and your mortgage is 30-40% less than the value of your home then you should be able to re-mortgage at a more attractive rate, potentially saving you a small fortune. Of course, you need to factor in any costs of moving such as any exit penalties on your existing mortgage and fees on the new one, as well as valuation and legal costs. You can then work out how long it’ll take you to break even and decide whether switching mortgage is worthwhile.

A quick trawl on the Internet, including price comparison sites like www.moneyfacts.co.uk and moneysupermarket.co.uk, should reveal the current ‘best buys’. And if doing it yourself seems like too much work, then use a fee-free independent mortgage broker. You’ll rarely pay any more than by going direct; the broker will usually receive around 0.35% of the mortgage value as a fee from the lender to pay for their time.

Giving needn't be taxing

Keep track of how much you give to good causes via the government’s tax-saving Gift Aid scheme. If you’re a top rate taxpayer, you can either boost your generosity or – and this is admittedly not a charitable thought – get some money back and keep it for yourself.


According to HMRC higher rate taxpayers reclaimed £280 million in tax relief on donations during the 2008/09 tax year, either for their own benefit or the charity's. However, it's thought that up to half of top rate taxpayers don't reclaim the additional 20% personal tax relief via their tax return. Good news for the taxman, but a lost opportunity for taxpayers and charities.

This is because Gift Aid, which promises full tax relief on donations, assumes all donors pay basic 20% tax only. Those on the top 40% rate can reclaim the extra tax they pay but they have to do it on the return – it’s not automatic unless they make charitable donations via their PAYE salary slip using Give As You Earn schemes.

So, for example, suppose you donate £100 using Gift Aid. The charity can reclaim £25 of basic rate tax and a further £3 from the Government (until 5 April 2011 to compensate for the basic rate tax rate falling from 22% to 20%) making a total donation of £128. If you're a higher rate taxpayer you can reclaim £25 via your tax return, either for yourself or as a charitable donation.

Note, you must have paid at least as much tax as is being reclaimed - this could include tax on savings and capital gains tax as well as income. If it suits, you can backdate Gift Aid donations to the previous tax year.

TAX TIP 1 – Couples where one pays top rate tax and the other basic rate should ensure that all donations come from the partner with the higher rate.

TAX TIP 2 - Never give to a charity without completing a Gift Aid form - charities that take cash usually allow for this on envelopes but putting coins in a collecting box is not tax efficient.