Tax on money from a foreign relative?

Question
I have received £50,000 from a relative who lives abroad. Is any UK tax due?Answer
Assuming it's a gift then there's no UK tax due. Just bear in mind that any subsequent interest or gains you might earn from saving/investing the money would be liable to tax as usual.

If the money had instead resulted from a joint investment you'd made (e.g. a holiday home) then you'd normally be liable to UK capital gains tax on your share of the profits.

Read this Q and A at http://www.candidmoney.com/questions/question488.aspx

Why bed and ISA?

Question
Why does such and unusual and (on the face of it "odd") term like "Bed and Isa" exist at all?. I remember the term "Bed and Breakfast" used to exist in relation to investments but have forgotten exactlt what it referred to. Somebody somewhere must have decided that the old "pun" should be kept going in a new form that no longer made any sense to the man in the street.

Why was this so and why does "Bed and ISA "have to be distinguished from a mere and "common or garden " switch : it implies there is a difference? Are there any Government inspired differences or insistences? I remember these being referred to but cannot remember what they were exactly.Answer
In investment terms, 'bed and breakfast' refers to the practice of selling an investment (e.g. shares or units in a fund) one day and buying back the same investment the following day - the reason being to realise capital gains that can be offset against an individual's annual capital gains tax allowance (currently £10.600).

However, Gordon Brown (then Chancellor) scuppered this practice in 1998 by introducing a rule that investors would have to wait for 30 days before buying back the investment to effectively realise gains. Otherwise, the original purchase price of the investment is deemed to be the price at which you subsequently buy it back (the original purchase will subsequently apply when you sell the investment and don't repurchase within 30 days).

This leaves three practical options if you want to optimise your use of the annual capital gains allowance by stripping out gains from your portfolio each year (I refer to shares below, but it could equally apply to other investments subject to capital gains tax)..

1. Sell shares and wait at least 30 days before repurchasing the same shares.

2. Sell shares and re-invest the proceeds (straight away) in other shares.

3. Sell shares and buy them back (straight away) within an ISA.

Re-purchasing shares within an ISA is not caught by the 30 day rule because an ISA is technically treated as a different investment, even though you might buy back the same shares you've just sold.

The reason for referring to 'bed and ISA' is to distinguish this from 'bed and breakfast', because the process does still allow you to realise gains when selling shares and repurchasing them within 30 days (plus everyone in financial services seems to like jargon!).

Read this Q and A at http://www.candidmoney.com/questions/question486.aspx

Should I use a foreign currency broker?

Question
My sister has had an offer accepted on a house in Austria. She has to put down 20, 000 Euro as a deposit but will obviously have to convert this from Sterling.

Apparently when you are transferring such large amounts of money the best way to do it, and to get the best rates, is to use foreign exchange dealers. The only problem is she is not sure they are regulated and have mixed customer service reviews.

Can you offer any advice on the best way to proceed safely?

Answer
Despite the potential benefits of good exchange rates and low charges, using foreign exchange brokers remain a dilemma due to concerns over the safety of your money. Especially in light of the high profile collapse of Crown Currency.

I would only consider using exchange brokers that are authorised and regulated by the Financial Services Authority (FSA). Some companies are just 'registered' with the FSA (e.g. Crown Currency was), but I'd give these a miss as they don't have to jump through many hoops to do so - becoming authorised is more hassle hence companies who do this are arguably more serious businesses. See my answer to this earlier question for more details.

However, even authorised and regulated currency brokers are not totally safe, as any losses might not covered by the Financial Services Compensation Scheme (FSCS).

Is there much risk? In theory, no. An authorised and regulated currency broker must hold your money in a segregated client bank account - i.e. they can't touch the money for their own use. Provided the broker follows FSA rules then your money is safe while they hold it (unless the bank goes bust, in which case you should be covered up to £85,000, but double check this with the broker).

However, in order to physically exchange your money into another currency the broker must pass your money to a third party (called a 'counterparty'), at which point it's no longer held in the 'safe' segregated account and you could lose your money if either the broker or counterparty goes bust at that point. The counterparty will usually be a large bank so the chances of a problem are minimal, but always check which counterparty will be used and make your own judgement of how safe they'll be.

Once the counterparty returns the foreign currency to the broker it's once again held in the segregated account before being sent to the final destination bank account you've specified.

Provided you stick to a well established FSA authorised and regulated foreign exchange broker I think the chances of anything going wrong are very slim. You might get more peace of mind using a bank, but the rates and charges will probably look grim by comparison.

Hope your sister enjoys the new house.

Read this Q and A at http://www.candidmoney.com/questions/question485.aspx

What type of fixed interest should I buy?

Question
My bank have suggested that I top up my various accounts to £50,000 to avoid a £12.95 per month fee. To do this I need to move £30,000 from other savings accounts and new funds. However the Banks interest rates are ... awful!

I do have £15,000 in shares in a bank trading account which counts towards the £50k limit and I would be prepared to move other directly held equities held in my name t o the trading account to qualify circa £10/15,000. To obtain a realistic return on the £30k and stoop the monthly charge I am considering investing £5,000 x 2 into Fixed Rate Gilts, £5000 x 2 into Index Linked Gilts and £5000 x 2 Pibs. OR 3 x £10k if secure and lower charges. I would welcome your imput re: the selection of suitable funds.

For my research I have looked at RBS Inflation Linked 3.9% min 2022 and RBS Royal 5.1%, + Nationwide 6.875% . Fot the time being I would probably invest the income into shares in my wifes name over the next 5 years or spend if required.

Since I will shortly be 65 and my assessable income will by design be close to the Age Allowance Clawback threshold the Fixed Interset securities should probably be in my wife's name and she is aged 61 and basic rate tax payer. I will be 65 in August with a State Pension Disability Living Allowance (Higher rate) plus Mobility. Other assets are £475K SIPPS/PPPS, £75k ISAS, Shares//ITs/Units £ 35k Deposits, £40k and 3 interests in Properites £550k totalling circa £1.2m allocated roughly 66.67% self and 33.3% spouse.Answer
If my bank wanted to charge me £12.95 per month I'd tell them where to go and take my business elsewhere!

However, assuming you have reason to stay with them then check that their dealing charges aren't excessive (above £15 to trade online is very dear these days), else a few trades could start offsetting the monthly charge for some while.

Depending on redemption date, gilts are currently yielding around 2-4% gross until redemption (i.e. taking into account any capital gain/loss you make if buying now and holding until redeemed). This isn't very exciting. There might be scope for shorter term gains if inflation subsides (gilts don't like inflation), but then rising interest rates could push prices down. Over 5 years I think a fixed rate savings account paying about 5% p.a. arguably looks better value.

Index-linked gilts are currently yielding about 0.5% to redemption (i.e. the return ignoring inflation). The breakeven rate of inflation required for 2016 index-linked gilts to match returns from similar conventional gilts is about 2.9% - put simply if you think average annual inflation (RPI) will be higher than this then buy index-linked gilts, else conventional will give a higher overall return.

PIBs are yielding rather more (to redemption, or 'call') at around 7-10%, but there's a simple reason for this - they're viewed as being more risky. Plus, they can sometimes be difficult to trade which might be a pain when you come to sell. I think current prices are fair given the risks, but I wouldn't take too big a bet as we may not have seen the last of the financial turmoil that can push down PIB prices. To read more about PIBs see my answer to this earlier question.

The RBS Inflation Linked traded bonds aren't very generous - they pay the greater of inflation (RPI) and 3.9% each year and you run the risk that RBS might go bust (remember, this is a bond, hence bit covered by the FSCS). One of the 'less risky' PIBs yielding about 7% seems a better deal to me - after all, will inflation average over 7% a year (required for the RBS product to provide a higher return)? I doubt it.

Well done on splitting investments with your wife to optimise your tax position, you'd be surprised how many couples don't. As your income will be close to the age allowance limit, keep making use of ISAs as ISA income doesn't count towards this.

In summary, I would give serious thought to a fixed rate 5 year account with another bank/building society as rates of around 5% look attractive, especially if held via a cash ISA. Corporate bonds and PIBs generally look more fairly priced than gilts right now, but there's a reason gilts appear expensive - investors are nervous and buying gilts for safety. If companies and building societies do struggle over the next few years bond/PIB prices could suffer. If you can stomach stock market ups and downs then one of the more cautious equity income funds (e.g. Invesco Perpetual, Newton or Schroders) might prove worthwhile as their dividends remain quite attractive with yields (net of basic rate tax) of around 4-6%. You could also consider strategic bond style funds for fixed interest exposure (where managers move money between safer and riskier bonds based on their view of markets to try and deliver a decent return), but there's no guarantee of success and annual management charges can especially take their toll during flat/negative markets.

Good luck whatever you end up deciding.

Read this Q and A at http://www.candidmoney.com/questions/question484.aspx

Is it best to try and time markets?

Question
Some time ago I wrote asking whether you had any figures for what happens when an investor misses the worst N market days in (say) a five or ten year period. (I was curious to know how such figures would compare with those frequently given for missing the best N days.)

You were unable to find figures, but I am now in a position to tell you a little about what they might be.

According to the Morgan Stanley Countries Index (MSCI), an average investor holding global emerging markets funds for the whole of the ten years up to April received an annual return of 15%.

The average investor who missed the best 10 (or 20) days received 8.5% (or less than 5%).

The average investor who contrived to miss the worst 10 (or 20) days received 22% (or just under 28%).

Source: Ian Cowie, Daily Telegraph May 21.

You may not be sure what this proves. I’m not sure either. However, the figures relating to the best N days are often trotted out as somehow establishing that one should always, always be ‘in the market’. The above figures for the worst N days suggest that on the contrary the odds may not be stacked against one if one misses the odd day or several. Perhaps what the figures really show is their worthlessness, whether for best or worst days.

On that sad conclusion, I hope I haven't wasted your time.Answer
Thank you very much for the figures, they make interesting reading.

I suppose the rationale behind figures showing reduced returns if you missed the best N days is that it highlights the risk of missing big upturns (due to not being invested) when trying to time markets (i.e. attempting to buy at the bottom). But you're right, in trying to time markets you might also miss very bad days and end up better off than had you stayed invested.

On balance the odds might be in favour of remaining invested throughout because it's easier to stay put (and not miss the best N days) than to actively try and avoid the worst days.

Nevertheless, as you conclude, I wouldn't get too caught up on worrying whether you'll end up better or worse off by trying to time investments versus taking an invest and hold approach. Unless an investor is exceptionally insightful or lucky they'll probably get it wrong about as often as they get it right!

If anyone has more thoughts/views on this please post below.

Read this Q and A at http://www.candidmoney.com/questions/question481.aspx

Is my part-time final salary pension fair?

Question
I am lucky enough to have a final salary pension but it does not pay out until I am 65 which is in about 12 months time. For the past 3 years I have worked on a part time basis for my emloyer and it was agreed that all part time days would count as service toward the pension a long with any additional days that I agreed to work when the company had need of me. This was in writing and I paid pension contributions on the part time and additional days .

I have now left work and my pension details have been crystallised. The company now advises that not all the additional days will count toward pension service - only mutiples of 8 which they equate to a months service. They claim that "all days count" toward the pension but only multiples of 8 will result in a service credit! Whilst the sums involved are minimal this really seems sharp practice. I do not believe the service of full time staff is based on mutiples of 8 ! There are 7 days where I paid contributions but no service credit is to be given - at the very least I believe a refund of the contributions would be reasonable but the company is silent on this question. Who is being unreasonable?

The trustees oversee a pension fund which pays out to both Directors and Staff. Directors are allowed to retire at 60 years staff must wait until they reach 65 years. Whilst Directors pay in more by reason of higher salaries is it fair that they can take pensions 5 years earlier from the same fund that I have paid into - it seems that I am potentially subsidising their pension! Am I muddled?

Thank you in anticipation of your reply
Answer
The usual practice for calculating a final salary pension for someone moving from full-time to part-time work is to pro-rata the salary up to the full-time rate and pro-rata the period of service into full years of service.

For example, suppose you belong to a 60ths pension scheme and worked 5 days a week at £30,000 a year, then reducing to 2 days a week for 3 years with a pro rata salary reduction. Your part-time pension entitlement would be 1/60th x 2/5 x 3 x £30,000 = £600 annual pension. The 2/5 part of the calculation takes account of working 2 days a week (out of 5) which, over 3 years, gives the equivalent of 1.2 full years of service at full annual pay of £30,000. Multiply this by 1/60th to get the actual pension.

It sounds as though your employer is doing things a bit differently, although the net result is likely to be pretty much the same. Using 8 days to equate to a month's service suggests your employer is assuming a 2 day working week (with 4 weeks in a month) then applying this to your actual salary rather than pro-rating to an annual salary (as per the above example).

Only counting multiples of 8 working days is a bit stingy, I suppose they do this to make the administration simpler. But it does seem unfair that this approach can ignore up to 7 days of service which, as you mention, contradicts your employer's claim that 'all days count'. I would ask to the company's pension administrator for an explanation and how they reconcile this to their claim - and check whether the part-time pension calculation is detailed in the pension paperwork you were given when moving from full to part-time. If you feel you don't get a satisfactory answer then by all means complain.

It's not uncommon for directors to enjoy more favourable pension benefits than other members of staff. And yes, they probably will get relatively greater benefits from a final salary scheme by virtue of having a higher salary and potentially a more favourable accrual rate (i.e. they can build up their years of service more quickly).

That's just the way it is, but it's the company and not you that's subsidising them. I suppose the burden of lots of fat-cat director pensions doesn't do much to help final salary pension scheme deficits, but unless the scheme is in danger of going bust then it's not really your problem.

Read this Q and A at http://www.candidmoney.com/questions/question480.aspx

How do fund yields relate to interest rates?

Question
I notice that virtually all ITs and OEICs pay a yield of between 0 to 5%, which is better than most savings accounts at the moment.

What happened back in the days when savings accounts paid 10 to 15% interest - did the ITs and OEICs still pay up to 5% more than savings accounts?

So what do you expect to happen this time around, to the average Income producing OEIC or IT, when the bank rate goes up from it's current low?Answer
Yield refers to the income paid by an investment divided by its price. To answer your question, it really depends on the type of investments held in the fund. As most funds invest in either stock market shares or corporate bonds, let's look at both of these.

Share income comes from the dividends that companies pay and is always quoted net of basic rate tax (for UK companies/funds). These tend to rise over time (unless the company has financial problems), but the yield will also depend on the share price. For example, suppose a company pays a 3p annual dividend and its share price is 100p, the yield is 3%. Let's assume it raises the dividend to 4p the following year - if the share price is still 100p the yield will be 4%, a share price of £133 would keep the yield at 3% while a share price of 150p would see the yield fall to 2.67%.

Yields of around 3% have generally been the norm for UK shares over the years, with dividends tending to keep pace with share price rises. When markets crash yields might rise above this, as dividends tend not to fall as much as share prices, while yields might fall a little during periods of soaring share prices.

Of course, some companies pay no dividends at all (i.e. zero yield) while others pay higher than average, but the above generally holds true. So, when interest rates were above 10% back in the mid to late eighties dividend yields would have looked low by comparison.

However, the bigger slice of long term stock market investment returns normally comes from rising share prices, so yield is only one part of the equation. For example, a stock market fund might yield 5%, but you'll still lose money if its price falls by more than 5% over the year.

Also, just because stock market yields tend to stay fairly level it doesn't mean you won't benefit from holding dividend shares long term. For example, suppose you buy a share at 100p with a dividend of 3p. 10 years later the dividend has risen to 6p and the share price is 200p. The yield is still 3% (6p/200p), but your original 100p investment is producing 6p annual income, an equivalent yield of 6%.

Corporate bond yields are more influenced by interest rate movements.

A corporate bond is an IOU issued by companies on which they promise to pay a fixed rate of interest before repaying the loan on a fixed date in future. For example, a company might issue a bond promising to pay 5p annual interest for 20 years per 100p borrowed - a yield of 5%. If savings account interest is less than 5% and you think the company is safe (i.e. they'll repay your interest and loan) then you might buy it. But suppose you can earn 10% in a savings account, no-one would bother buying the bond. So the bond's price would fall to make the yield competitive - in this example probably to 50p or less to give a yield of at least 10% (5p/50p).

So corporate bond yields will tend to mirror interest rates, but if you already own the bond then a rising yield means the bond's price is falling - potentially losing you money if you decide to sell.

In summary, I wouldn't expect higher interest rates to make much difference to stock market dividend yields but they would probably push up corporate bond yields.

Read this Q and A at http://www.candidmoney.com/questions/question479.aspx

List of pension annuity discount brokers?

Question
Where can I find a list of discount pension annuity brokers please?Answer
Pension annuities generally pay a one-off commission of about 1%. While the percentage is low, transaction sizes tend to be large so annuity commissions can still total hundreds or thousands of pounds - making commission rebates well worthwhile.

However, annuity discount brokers are very thin the ground these days - to the point I've only managed to find two:

Annuity Discount Brokerage - rebates between 51%-80% of the commission they receive.

Moneyworld - rebates up to 1% commission.


I think the lack of discount brokers willing to handle annuity business is a reflection of just how big a pain insurance companies are to deal with. In an ideal world a discount broker would transact your annuity business for a fixed admin fee, after all, there's no more work processing a £100,000 annuity than one for £10,000. But factor in the time and hassle typically involved with submitting and chasing up pension annuity applications and most discount brokers seem to have come to the conclusion that it's simply not worth their while.

I included the two discount brokers above in a comparison here (look about halfway down the page), Moneyworld had the better quote. Nevertheless, these things can frequently change so I'd get quotes from both the above and a couple of non-discount annuity specialists to see who comes out top.

Read this Q and A at http://www.candidmoney.com/questions/question476.aspx

Are financial adviser funds bad value?

When financial advisers run their own investment funds, are they the only ones that probably stand to benefit?.

There's normally a divide between financial advisers and investment fund managers. Advisers are responsible for the big picture (i.e. how to generally invest your money tax efficiently) while fund managers look after the specifics of running the investments day to day to (hopefully) make you a profit.

There are plenty of bad examples of each, but it's a process that generally works quite well in practice.

A few years back some financial advisers decided to start doing the fund manager job themselves, which led to quite a few 'broker bonds' being launched. However poor performance and/or regulatory problems led to most closing after a while.

But investment funds run by financial advisers have started cropping up again, which begs the question: are they any good or should you avoid them?

Why do advisers launch their own funds?

One word - profit. When financial advisers sell funds run by other investment managers they usually pocket annual 'trail' commission, typically 0.5% of the fund value. Selling their own funds means the adviser company can instead collect around 1% or more a year in management fees - at least doubling their revenue.

The adviser will have to spend some money on a manager and running the funds, but they will also make savings from not having to consult their customers every time they want to change the portfolio (as usually happens when using conventional funds).

Are there any benefits for customers?

Assuming the adviser has a good fund manager then you could benefit from decent investment performance. But, as the examples below highlight, this might be wishful thinking. Some customers may like the hands-off approach of an adviser running the fund (rather than the adviser checking every time they want to suggest a portfolio change), but then others might not. Lower charges could, in theory, be a potential benefit, but in practice customers seem to be paying more, not less, for adviser funds versus conventional.

In summary, I'm struggling to find any benefits other than owning one or two funds (rather than lots) makes capital gains tax planning easier.

What do adviser funds invest in?

The norm is to invest in other funds, i.e. the advisers are running funds of funds. Holdings might include investment trusts, ETFs and hedge funds in addition to unit trusts. Adviser funds only usually invest directly in shares when the management is outsourced to a specialist (an approach St James's Place uses).

How do adviser funds fare?

Fund	2010/11 (1 year)		2009/10 (1 year)		2008/09 (1 year)		Sector
	Return	Sector Rank	Return	Sector Rank	Return	Sector Rank
Bestinvest
Defensive Portfolio	+4.0%	136/150	+18.4%	68/139	N/A	N/A	Cautious Managed*
Income Portfolio	+7.7%	76/150	+22.5%	27/139	N/A	N/A	Cautious Managed*
Income & Growth Portfolio	+8.8%	87/137	+21.9%	75/125	-13.9%	16/109	Balanced Managed*
Growth Portfolio	+9.4%	71/113	+24.8%	54/106	-14.3%	8/92	Active Managed*
Aggressive Growth	+9.6%	66/113	+26.0%	40/106	N/A	N/A	Active Managed*
* fund is in the 'unclassified' sector, I've assumed an appropriate mainstream sector for comparison.
Hargreaves Lansdown
MM Cautious	+10.7%	19/149	+19.9%	45/138	-18.6%	81/114	Cautious Managed
MM Balanced Managed	+10.4%	91/136	+24.8%	25/124	-22.0%	76/108	Balanced Managed
MM Income & Growth	+16.3%	50/95	+21.0%	58/91	-22.3%	24/81	UK Equity Income
MM Special Situations	+14.9%	22/189	+28.2%	94/178	-25.4%	103/167	Global
MM Strategic Bond	+7.5%	27/61	+24.7%	30/59	N/A	N/A	UK Strategic Bond
Heartwood
Cautious MA	+4.3%	134/149	N/A	N/A	N/A	N/A	Cautious Managed
Balanced Income MA	+6.6%	121/136	N/A	N/A	N/A	N/A	Balanced Managed
Balanced MA	+6.4%	125/136	N/A	N/A	N/A	N/A	Balanced Managed
Growth MA	+7.7%	88/112	N/A	N/A	N/A	N/A	Active Managed
St James's Place
Cautious Managed	+8.1%	62/149	+17.7%	79/138	-14.8%	60/114	Cautious Managed
Balanced Managed	+13.3%	9/136	N/A	N/A	N/A	N/A	Balanced Managed
Managed Growth	+9.1%	81/136	N/A	N/A	N/A	N/A	Balanced Managed
Strategic Managed	+10.1%	53/136	N/A	N/A	N/A	N/A	Balanced Managed
Towry
Scot Life Towry Defensive	+3.8%	50/52	N/A	N/A	N/A	N/A	Mixed 0-35% shares
Scot Life Towry Mixed	+6.0%	326/381	N/A	N/A	N/A	N/A	Mixed 20-60% shares
Scot Life Towry Growth	+7.2%	573/641	N/A	N/A	N/A	N/A	Mixed 40-85% shares
All figures shown bid to bid with net income reinvested to 18 May 2011.

Hargreaves Lansdown and Bestinvest run their own funds of funds which are offered alongside conventional funds via their discount broking and advice services. In fairness, they don't appear to unduly push their own offerings above others in the marketplace, seemingly relying on the funds' merits to attract business. Hargreaves Lansdown charges a 1% annual management fee, resulting in total annual fund charges (including underlying funds) in the region of 2%. Bestinvest charges a 1% management fee for investments of £50,000 or more not held on fund supermarkets, but 1.5% for everyone else. The latter means total annual costs approaching 2.5% a year - very high for customers but over double the revenue for Bestinvest! (even after supermarket/fund admin costs).

Towry encourages its customers to exclusively use its own funds. Unfortunately Towry doesn't publish daily performance data for its funds, so I've obtained some examples via pension fund versions of its funds (where the data is published by insurance companies). While we can't judge a company on one year performance, the figures don't look good to date. Towry charges 2% a year to manage the first £100,000 invested, add in advice and underlying fund/admin costs and you'll probably end up paying over 3% a year - far too high.

Heartwood offers clients the choice of its own funds or conventional portfolios. The former only have a mediocre one year track record to date, too short a period to cast a sensible judgement. Annual management charges are 1.25% with total annual fund charges of around 2%.

St James's Place ties its advisers to using its own funds, of which there are over 50. I've just listed the few in the managed sectors above, but they're fairly representative - a mix of good and indifferent performance. The St James's Place approach is different to the advisers above as they largely outsource the management to conventional funds managers (e.g. Invesco Perpetual's Neil Woodford runs the income fund), but probably still more profitable than if they used conventional funds.

Can an adviser really be independent when selling their own funds?

The FSA is considering this question , as it's clear 'distributor influenced funds' (DIFs), i.e. adviser's own funds, could compromise independence. On the flipside, the adviser might argue they are independent as they can hold investments from across the market in the fund. In practice, I think it would be sensible to re-classify 'independent' advisers who place more than 20% of their overall business in their own funds as 'tied' or 'multi- tied'.

Should you use adviser funds?

As things currently stand, my answer is no. The only reason for doing so is if you will benefit from better overall performance (versus a conventional portfolio) after all charges. And evidence to date suggests this is far from certain.

If advisers really wanted to launch funds that were in their customer's best interests they'd charge no more than 0.5% a year in management fees and keep overall costs around the same as conventional (non-fund of) funds. They'd then need to deliver good performance and service to grow their revenue, instead of simply 'up-selling' customers into higher margin product.

Read this article at http://www.candidmoney.com/articles/article228.aspx

Are eurotunnel warrants worth anything?

Question
Hi and thanks for your advise on a previous matter.

I have a friend who has discovered a share cert dated 1988 in eurotunnel plc or rather its one hundred warrants my friend would like to know if they have any value and how to encash them if so?

Once again thanks for your help in the past.Answer
Hello again. If the certificate is for warrants only then I'm afraid it's almost certainly worthless as I think it will have expired by now.

Warrants give shareholders the right to buy shares in a company at a fixed price up to a fixed expiry date. Up until that date the warrant will have a value if the price it allows holders to buy shares at is lower than the prevailing company share price.

For example, a warrant allowing holders to buy shares in Company X for 20p would be worth around 10p if the shares were trading at 30p, because holders can effectively buy the shares at a 10p discount. But if the shares were trading at 16p the warrant would be worthless as nobody would bother paying for it when they buy the shares more cheaply on the market.

Once a warrant passes its expiry date then it's worthless as it can no longer be used. I'm afraid this is very probably the case with your friend's eurotunnel warrants as I doubt warrants issued in 1988 would have an expiry date stretching this far forward (especially as the company's share issue was re-structured in 2007). Nevertheless, it'd be worth checking the certificate for this date before putting it in the shredder.

If you do have unexpired warrants they can usually be sold via stockbrokers, or you could exercise the warrant to buy shares at a discount then make a profit by selling them at market price.

Read this Q and A at http://www.candidmoney.com/questions/question475.aspx

How should I invest an inheritance for retirement?

Question
I am 48 years old. At the end of 2009 I remortgaged to undertake some rennovations on my home and the current balance on my offset mortgage is £140k and the current interest rate is base +0.75%. In addition there is a reserve of £29k. I estimate that endowments from my original mortgage will mature in November 2013 realising circa £40k. The balance of the mortgage matures in 2024.

I will shortly inherit approx £120k. In terms of other assets I have £15k in cash ISAs, £60k invested in a growth-moderate risk portfolio and I also have £4k with Equitable Life from when I was paying AVCs (I have done nothing with this or paid any further AVCs since the problems with Equitable Life).

I currently have 17 years of contributions into a LGPS final salary scheme, I also have a deferred pension from previous employemnt last valued in 2005 at £1,100 p.a. Would ARC's be worth considering?

I am looking for adivice on how I should best utilise my inheritance; reduce or pay-off my mortgage (although it looks like interst rates are going to remain low for at least the next 12 months), or invest for retirement? I would love to think I could retire early but have resigned myself over the last couple of years that it won't be possible because the normal retirement date is increasing, the cost is increasing and the benefits are decreasing.
Answer
There's no right or wrong answer as to whether you invest your inheritance towards retirement or use it to pay off your mortgage.

On the one hand your mortgage rate, base rate + 0.75% (just 1.25% at current 0.5% base rate) deal is exceptionally good and you could earn more than this from putting cash in a good savings account.

But on the other, interest rates could rise over time and investment returns are, as ever, uncertain (unless you stick to fixed rate savings accounts).

I share your view that interest rates are unlikely to increase by much, if anything, over the next year or two (our economy probably remains too fragile for the Bank of England to consider rises). On this basis it's tempting to do something else with the money other than repay the mortgage in the hope of earning higher returns.

The trouble is, investing should realistically mean taking a 5-10 year view during which time we will almost certainly interest rates rise to more usual levels, pushing up the cost of the mortgage.

On balance, you might consider something very broadly along the following lines:

Put £40,000 of the inheritance in your offset mortgage cash account. This will reduce your monthly mortgage payments (equivalent to tax-free interest on the cash), but keep the money accessible should you want to use it in future.

Use £50,000 to boost your retirement provision, by buying extra pension in your LGPS (via a lump sum, ARCs or AVCs) and/or using a stakeholder or self-invested pension.

Invest the remaining £50,000 in a similar way to your existing portfolio, using cash and shares ISAs where possible.

The maturing endowment money can then be used to further reduce/offset the mortgage (or invest, depending on interest rate outlook at that time), leaving an effective outstanding balance of around £60,000 in November 2013. The savings on your monthly mortgage payments can be used to invest or further boost pension provision. Or, if interest rate rises push up the monthly payments, at least reducing the mortgage to £60,000 should lessen the pain (you could cash in some investments to repay the mortgage in full if necessary).

Your LGPS will, for service up to 31 March 2008, pay a pension of 1/80th of your final salary for each year worked plus a tax-free lump sum of three times your pension. For service thereafter you’ll receive a pension of 1/60th of your final salary for each year worked with the option to sacrifice some of this (at a rate £1 for each £12 of lump sum) for a tax-free lump sum of no more than 25% of your pension fund value (deemed to be 20 x your pension).

Buying extra LGPS pension entitlement via a lump sum or regular payments has the benefit that there's no investment risk, you'll know exactly how much you'll receive for a given contribution. For a male aged 48 it'll probably cost around £2,600 (eligible for tax relief) per extra £250 pension at age 65 (£2,900 for a female), you can get exact figures from your scheme administrator.

Given it'd cost around £5,600 to buy a £250 annual annuity at age 65, you'd need to earn about 4.6% a year on the money otherwise to match these benefits - possible, but not certain (please note my calculations are very approximate, not up to actuarial standards!).

Perhaps consider splitting the pension contribution between buying extra annual LGPS pension and an investment linked pension such as a AVC/stakeholder/SIPP, depending on how optimistic you are about future investment performance.

Holding cash and investments within ISAs, where possible, is a good idea as the income isn't subject to tax. This could prove especially useful in retirement as it won't affect your additional age related personal income tax allowance (assuming it still exists then!).

If you have a spouse it'd also be a good idea to factor their position into the above too, to ensure you optimise your combined tax allowances and that you're both provided for during retirement (especially after first death). For example, if your spouse is likely to be a non-taxpayer during retirement then making some pension contributions on their behalf (with the intention of the resulting pension income using their annual personal income tax allowance) generally makes sense.

Giving specific advice is beyond the scope of this site, but I hope the above gives you some general pointers and ideas.

Read this Q and A at http://www.candidmoney.com/questions/question474.aspx

Should I avoid withholding tax on foreign investments?

Question
I just read your reply on 3rd May 2010 in which you explained the dividend and withholding tax for ETFs domiciled in Ireland, and that the net tax effect is the same for UK tax-resident, even though ETF domiciled in Ireland does not impose withholding tax.

I'm tax resident in a country where all foreign sourced income is tax-exempt and there is no tax treaty with the US. So, does this mean it is more tax-efficient that I hold ETFs domiciled in countries where there is no withholding tax, versus countries where there is withholding tax?Answer
Yes, no withholding tax is likely to be better in your situation.

Some countries deduct a 'withholding' tax on investment income (e.g. dividends) when paid to foreign investors. If the country in which you're tax resident has a double taxation agreement with the country withholding the tax, it might be you can reclaim some/all of the tax - usually by offsetting the withholding tax against any tax owed on that income in your country of residence.

For example, UK double taxation agreements usually allow around up to 15% of foreign withholding tax to be offset against any UK liability.

In your case there's no domestic tax to offset any withholding taxes against, because you've said foreign sourced income is tax exempt (in your country of tax residence). You might, in theory, be able to reclaim these withholding taxes from the foreign tax authority if there's a double taxation agreement in place, but in practice it'll probably be harder than getting blood from a stone.

So the best route in your instance is to simply avoid withholding tax wherever possible. Unfortunately, putting together a list of countries that don't apply withholding tax is not straightforward, as it can vary depending on the country in which you're tax resident. For example, Ireland doesn't deduct withholding tax on dividends from ETFs paid to UK tax residents, but it deducts 20% withholding tax when paid to US tax residents. Perhaps ask your local tax authority for a list, including details of any double taxation agreements.

Alternatively, you could avoid funds that pay an income, as withholding tax invariably applies to income, not gains. For example, you might invest in growth funds that pay little/no income or fund accumulation units (where the unit price increases to reflect income rather than it being paid out). In the case of accumulation units I suppose a tax authority might still want to withhold tax, but it will be harder for them to do so given there's no physical income paid out.

Also bear in mind when buying funds investing in foreign shares/investments that they too might suffer withholding taxes, which may or may not be reclaimed by the fund.

International taxation can get very messy...

Read this Q and A at http://www.candidmoney.com/questions/question473.aspx

Should I take AVC or SSSO?

Question
I have an in-house AVC to supplement my final salary scheme pension, the rules of the AVC allows me an option of implementing the 'State Spreading Scheme Option' (SSSO) which lets me draw a temporary pension from my actual retirement to my state pension age, entitlement is up to a maximum of 125% of the value of a single person's basic state pension.

I have £52000 in my AVC and am planning to take 25% as a tax free lump sum leaving me £39000. I plan to retire at 59 years of age therefore I have the option of using the SSSO which would give me a gross of £121 per week until I reach 65 or an annuity of £37:50 per week for life.

My health is reasonably good (on high blood pressure tablets), and am reasonably fit.

Which option would you suggest?Answer
Under current pension rules you can take benefits from an AVC pension anytime from age 55, regardless of whether you're already receiving an income from the main pension scheme.

It sounds as though your pension scheme allows this, as you can take the 25% tax-free cash and then buy a £37.50 weekly income for life with the balance. But you also have the option to instead use the State Spreading Scheme Option (SSSO) to provide a higher weekly pension income until your state pension kicks in.

The benefit of SSSO is that you can receive more income now, but this will cease after 6 years when you reach 65. Buying an income for life means much less income now, but it could be paid for a lot longer.

Assuming you don't need the extra income now, then the decision is really a gamble on whether you'll for long enough to benefit from the income for life over the SSSO income.

The SSSO would provide income of £6,292 a year for six years, a total of £37,752. If you select the £37.50 per week option, £1,950 a year, you'd need to live until about 78 to be in profit (the average life expectancy for a male aged 59 is around 85-86).

However, an accurate comparison is more complicated. If you don't spend all the higher income now you could earn a return by saving or investing it, And if we assume the income is flat (i.e. not index-linked) then inflation means the income will buy progressively less in future, making higher income now more valuable.

So if you only spend the first £37.50 per week of the £121 SSSO pension and earn 6% a year from investing the rest (from which you continue to draw a £37.50 weekly income from 65), the breakeven age rises to around 100 - suggesting taking the SSSO would almost certainly be more profitable. However, investment returns can vary widely - e.g. if they averaged 3% a year the break even age would be around 82.

If you don't need or want the extra income now then your decision basically boils down to risk. Both how long you'll live and the amount of saving/investment returns you could get on the money.

If you're comfortable taking some investment risk and/or believe your life expectancy is below average then the SSSO may likely prove more profitable. But if you don't like taking investment risk and/or expect to live a reasonably long life then the £37.50 per week option may prove better.

I've ignored the possibility of an index-linked income and spouse's pension, which may or may not be options available to you. Index-linking (i.e. pension income rising by inflation) becomes more worthwhile the longer you live, while a spouse's pension can be valuable if you expect your wife to significantly outlive you.

Sorry I can't give a definitive answer (I don't think one exists), but hopefully the above will help you make a sensible decision.

Read this Q and A at http://www.candidmoney.com/questions/question471.aspx

Beware banks selling protected investments

Banks have a history of pocketing high commissions to sell mediocre investment products. Little seems to have changed..

Actually, I should probably change the title to beware banks selling investments, period.

But my focus here is protected investment plans for two reasons. Firstly, they're quite an easy sell to naive, unsuspecting customers. And secondly, the banks seem to receiving rather high sales commissions for flogging them.

To recap, protected plans run for a fixed term, typically 5 years, and link returns to an investment index (e.g. FTSE 100) while protecting some or all of your initial investment.

They're not necessarily bad products, it all depends on the terms offered by the plan (e.g. what proportion of FTSE 100 growth you'll receive). But because sales commissions are paid out of money that would otherwise buy investment returns, it generally follows that the higher the commission the less attractive/competitive the product.

And there's also the risk that banks or building societies will try to sell these plans (to hits sales commission targets) regardless of whether they're actually appropriate for customers - Norwich & Peterborough Building Society was fined £1.4 million in April this year by the FSA for mis-selling these types of product.

Let's take a look at the banks and building societies selling these products (at the time of writing):

Bank/Bsoc	Product	Provider	Commission
Nationwide	Protected Equity Bond	Legal & General	7%
Santander	Growth Plan	Santander	6.8%
Yorkshire BS	Protected Capital Account	Credit Suisse	4%
Chelsea BS	Protected Capital Account	Credit Suisse	4%
Barclays	Growthbuilder	Woolwich	min 3%

It makes for depressing reading - especially in the case of Nationwide pocketing an extortionate 7% commission, equal to £700 per £10,000 invested. But at least the above disclose sales commission in their key features document, HSBC simply says the amount will be confirmed by their adviser when you buy - not very transparent.

Of course, this is nothing new. Banks have long found ways to screw money out of their customers, regardless of whether it's in the customer's interests. Buy despite efforts by the FSA over the years, little has changed.

At the very least financial providers and banks should be forced to display any sales commissions on the first page of product literature - I got the figures in the table above from small print that most customers will never read...

Or maybe banks and building societies should be banned from selling investments unless they start acting more responsibly. What do you think?

Read this article at http://www.candidmoney.com/articles/article227.aspx

What do letters like A and B after fund names mean?

Question
I am looking at various share funds, and notice that they frequently have several variations of the same fund listed as xyz A, xyz B etc. The composition of these funds appears to be identical, although their performance and price are not. What's going on here? Why the duplication, and the different results?

Also, many funds are listed as accumulation and/or income funds (xyz A Acc; or xyz A Inc), but it seems that there is still the option to re-invest any income back into the funds. So why the difference?Answer
When a fund appears with different letters after its name it's because there are several versions (called unit or share 'classes') of the fund.

The investments held in the fund are normally identical (I'll cover the exception below) and all that changes between different classes is charges.

Fund groups do this if they want to vary charges depending on the type of investor buying units.

For example, most funds will have a 'retail' version for private investors (like you and I) that includes sales commission and fund supermarket fees within its charges, e.g. 3% initial and 1.5% annual charges. The retail class is often denoted by an 'R', but it could easily be 'A', 'B' or whatever else the fund group decides to use.

Funds usually have an institutional class too (aimed at large professional investors like pension and fund of fund managers) which excludes commissions and platform fees, e.g. no initial and 0.75% annual charges. Institutional units might be denoted with an 'I'.

Some funds might also have a different performance fee version, which again will have a letter after its name to reflect this.

So any difference in performance between classes should be solely due to charges, with the institutional version performing better than the retail version.

The exception I referred to above (when fund investments do vary) relates to some investment trusts (including venture capital trusts) which often use a 'C' class when raising extra money for their fund. In this instance the C class will initially contain cash which is then invested before the units are merged into the main fund at a later date. So for a period of time (usually up to several months) the investments held may be different from the main fund.

How do you know what each letter means? Aside from 'R' and 'I' there is no standard use of letters, so I'm afraid it's a case of checking with the fund group.

Accumulation funds don't offer an income re-investment option as the unit price automatically increases to reflect any income that would otherwise have been paid out, whereas income units do usually offer this option. Is there any tangible difference from an investor's point of view? No, unless the fund group levies an initial charge when re-investing income - most don't these days but it can happen.

While it might seem a bit redundant when a fund has both income units (that allow income re-investment) and accumulation units, that's just the way it is. Income producing funds need to offer an income unit option and it's standard practice to allow re-investment. Accumulation units are usually offered too as some investors simply prefer this option (I suppose it keeps things simpler as the number of units owned doesn't change).

Hope all this makes sense.

Read this Q and A at http://www.candidmoney.com/questions/question470.aspx

Getting life insurance after a heart attack

Question
I am 38 yrs male, used to smoke (not now) and had a heart attack in Dec 2009, undergone angioplasty.

I am looking for my life insurance, could you please let know which companies will be able to insure me?
I know the premium will be loaded, but which insurance companies will load less bearing in mind condition.

Should I go for whole life cover? or term insurance? or critical cover? say for £100K to £150k

Look forward to hear from you soon. One of my friend suggested to ask you this.Answer
Glad you found the site and hope you find it helpful.

Getting life insurance after a heart attack is possible but, as you point out, it's likely to be expensive. The extra premium 'loading' insurers charge will depend on the extent they feel your heart attack will reduce your life expectancy, if at all. Because this can vary quite widely dependent on an individual's specific circumstance I'd speak to several specialist insurance brokers in this area (I'm afraid it's not something I look at day to day) and compare their quotes - google 'life insurance heart attack' and you'll see quite a few brokers to choose from.

As for the type of life insurance I'd opt for term assurance. Whole of Life is very expensive and, at your age, probably pointless as you'll have to continue paying premiums for the rest of your life. Term assurance covers you for an agreed amount over a specific period of time, for example 20 years - if at any point you decide you no longer need cover then you simply cancel the policy and stop paying the premiums. Just make sure the premiums are guaranteed else they could potentially soar in future.

Critical illness cover is appealing as it pays out in the event of serious illness such as cancer, heart attack and stroke. However, as the likelihood of a payout is a lot higher than life cover it's expensive, and given your medical history the cost will probably prove prohibitive. Nevertheless, you could ask the brokers for a quote, then you can decide for yourself.

Good luck finding affordable cover and if any other readers have experience in this area please post below.

Read this Q and A at http://www.candidmoney.com/questions/question469.aspx

jpjshare.com review

The downward pressure on online share dealing costs continues with the recent launch of jpjshare.com from an Isle of Man based broker (Rivington Street Stockbrokers) which undercuts low cost stalwart x-o.co.uk by 20p per trade.

Jpjshare.com offers no-frills online trades for just £5.75, falling to £4.75 if you place more than 15 trades in a given month. There's a free ISA wrapper and you can withdraw your cash/dividends for free via BACS. And you can also deal by phone for £7.50 (deals below £35,000), £15 (between £35,001 - £49,999) or 0.05% of deal size (for £50,000+).

With such competitive charges, are there any downsides?

Yes, but in general they're shared by other low cost stockbrokers: dealing is via a nominee account that's restricted to UK stock markets (London Stock Exchange, AiM and PLUS) , no interest on cash balances and a £20 per stock fee to move to another broker. However, unlike many rivals, there's no penalty for closing or transferring the ISA elsewhere (just the underlying stock penalties, if applicable) - a good thing.

Perhaps the biggest potential downside is that jpjshare.com is based and regulated in the Isle of Man, rather than the UK. This means they are regulated by the Isle of Man Financial Supervision Commission and not the FSA, affecting possible compensation payouts in the event that a bank used by the stockbroker for client accounts defaults or the stockbroker themselves does something untoward and goes bust (investor compensation doesn't cover losses from bad/unlucky investment selection).

Under the FSA Financial Services Compensation Scheme bank accounts are covered up to £85,000 per person per institution (including individuals within stockbroker 'pooled' accounts) while investments are covered to £50,000.

Under the Isle of Man Depositers' Compensation Scheme bank accounts are covered up to £50,000 per person per institution - but given it treats 'pooled accounts' (as used by jpjshare.com) as a single customer, meaning the £50,000 is split between all clients, potentially rather worthless. And the equivalent investment compensation scheme doesn't cover non-fund investments. So it seems you'll be eligible for little, if any, compensation in the unlikely event anything bad should happen.

On the bright side jpjshare directors include Tom Winnifrith, a well regarded journalist turned fund manager, and Brian Gould, who's held senior positions at Merrill Lynch and AXA - so it appears to be a serious business.

Being a 'no-frills' broker don't expect benefits such as discounts for reinvesting dividends, a regular savings scheme or SIPP. But you can place limit orders and will receive an annual consolidated tax voucher.

I haven't used jpjshare.com's services, but have little reason to suspect their service or stock prices will be any different from other online stockbrokers - they're all much of a likeness in this respect.

In summary, jpjshare.com offers a very good deal. My only concern is the lack of investor compensation protection, due to them being Isle of Man based. While this is unlikely to be a problem, you can never say never. Personally I'd rather pay slightly more and use a FSA regulated UK broker for peace of mind.

Read the full review at http://www.candidmoney.com/candidreviews/review60.aspx

Is jpjshare.com any good for sharedealing?

Question
Is Jpjshare.com a reliable company for share dealing?Answer
I've not heard of this stock broker before, but on the surface Jpjshare.com offers a very competitive deal.

Online share trades are just £5.75 (undercutting x-o.co.uk by 20p!) and this falls to £4.75 if you place more than 15 trades in a month. An ISA wrapper is available free of charge and withdrawing money via BACS is free.

You can buy and sell shares traded on the London Stock Exchange, AiM and PLUS markets (the latter two are small company exchanges). Shares are held in a nominee account via CREST, not infallible (see my answer to this question) but pretty standard practice these days.

I've not used their services but have no reason to believe they'll be any better or worse than other online stock brokers, i.e. they should do what they say on the tin.

The directors include Tom Winnifrith, a well regarded journalist turned fund manager, and Brian Gould, who held senior positions at Merrill Lynch and AXA - so I think it's fair to say this is a serious business.

Perhaps the only potential issue for some customers is that the business is based and regulated in the Isle of Man, not the UK. This means they are regulated by the Isle of Man Financial Supervision Commission and not the FSA. This affects possible compensation payouts in the event that a bank used by the stock broker defaults or the stock broker themselves does something untoward (investor compensation never covers losses from bad/unlucky investment selection!).

Under the FSA Financial Services Compensation Scheme bank accounts are covered up to £85,000 per person per institution while investments are covered to £50,000.

Under the Isle of Man Depositers' Compensation Scheme bank accounts are covered up to £50,000 per person per institution (JPJ Share uses HSBC). However, the equivalent investment compensation scheme doesn't appear to cover non-fund investments, so it seems unlikely you'll be eligible for compensation in the unlikely event anything bad should happen.

All in all JPJ Share offers a good deal. But I'm not sure the slight saving over the cheapest FSA regulated stockbrokers are worth the lack of investor compensation protection.

Read this Q and A at http://www.candidmoney.com/questions/question468.aspx

Is there profit in clean energy?

Can you profit from climate change or will it hurt your portfolio as well as the environment?.

What is clean energy?

Clean energy means power derived from renewable/sustainable sources such as solar, wind, water, geothermal and, to some extent, biofuels. The advantages over energy derived from finite fossil fuel sources such as oil, gas and coal is that they are far less likely to run out or pollute our environment. Nuclear energy falls somewhere between the two - while sustainable long term there are issues over used radioactive material and severe pollution in the event of accident.

Is the future green?

The simple truth is that (to some extent) it has to be. Our reliance on fossil fuels can't last forever, especially as emerging market demand for energy will soar in years to come. However, in the short term developed countries seem more concerned about repairing their fragile economies and emerging countries want to keep growing theirs - clean energy tends to take a back seat unless forced.

Despite the relative failure of the Copenhagen Climate Change talks in late 2009, there is a general move towards greater use of clean energy and a number of countries and economic regions have set their own renewable energy targets. Expect clean energy to once more feature more prominently on the global agenda within the next 5 years.

The table below gives some idea of where renewable energy usage (as a % of total) stands at present and the extent it must grow to meet targets (note: I've found it surprisingly difficult to source accurate data for current renewable energy usage, figures shown are broadly correct):

Country/Region	Present Usage	Target by 2020
UK	3%	15%
EU	11%	20%
US	9%	No target
China	8%	15%
India	4%	No target

The consensus amongst global bodies seems to be that renewable energy usage should reach 80% by 2050 - a pretty major shift from where we are now.

Does this mean good investment opportunities?

Proven clean energy sources will undoubtedly be used more widely in years to come, along with other green technologies still in development. So investments in this area should generally prosper.

However, clean energy investment performance is heavily influenced by the oil price in the shorter term - if the oil price is high then clean energy is attractive and vice versa if it's low. Until oil supply starts to dry up, or we're all compelled to use significantly more clean energy, it's hard to see this changing. Yes, over time we'll almost certainly be compelled to use more clean energy, but with a probable timescale of 10-20 years or more there’ll be little short term change.

If you’re hoping to make a quick buck from clean energy then I’m afraid you’re probably out of luck...unless the oil price rises further or you find a company on the cusp of bringing a successful new clean energy technology to market – easier said than done.

But invest sensibly in clean energy for the longer term and I think it’s very likely you’ll make worthwhile returns, just be prepared for lots of volatility along the way.

What about other green investments?

Clean energy isn’t the only area that could benefit from concerns over climate change. Businesses involved in water and waste management, green transport and sustainable living (e.g. organic agriculture, forestry & ethical science/healthcare) also stand to benefit from global environmental pressure.

But bear in mind that companies focussing on environmental issues tend to be relatively small and often based overseas. This can make them harder to research and potentially more speculative, especially if they're trying to develop new technologies. Plus your investment could be further affected by exchange rate movements. Always try to thoroughly understand a company and the possible risks before parting with your cash.

Are there any investment funds that invest in clean energy?

There are a few, examples include:

ETFX DAXglobal Alternative Energy ETF - tracks a global index of around 15 clean energy companies for 0.65% a year. It has equal weightings between five sectors: solar, wind, geothermal, natural gas and biofuels. As it's a 'synthetic' ETF there is counterparty risk, but I think this is a still a sensible way to invest in clean energy.

Blackrock New Energy Investment Trust - run by an experienced team but it's been more successful at losing money rather than making it in recent years. Its performance fee can also add to cost. Nevertheless, might be worth a punt long term.

Guinness Alternative Energy Fund - an Irish based fund that primarily invests in small solar and wind energy companies across the globe. Performance since launch in 2007 is less than convincing (it has consistently underperformed its benchmark index), although this is a short period of time to judge such a specialist fund.

Other more general environmental funds that partially invest in clean energy companies include the Jupiter Green and Impax Environmental Markets investment trusts. More diversified funds like these might be more appropriate unless you're comfortable with the additional risks of specifically investing in clean energy.

Be careful not to become too exposed to oil prices

Finally, bear in mind that your existing stock market investments will likely have a reasonable exposure to conventional 'dirty' energy companies (oil & gas companies make up about 20% of the FTSE 100). If you also invest in clean energy you might find your portfolio becomes excessively exposed to oil price movements shorter term - ensure you're comfortable with the risks of doing so!

Read this article at http://www.candidmoney.com/articles/article225.aspx

Should I sell commodities?

Question
As a novice investor I reacted to a very recent recommendation in Investor's Chronicle to invest in "7 Resources shares set to soar". Having put £500 in each (SNRP, NOP, IGAS, ZOX, GDP, KENZ, ANR) last week I am now not quite sure how to react to this week's decline in commodity equities.

My gut feeling is that I am in for the long term and things should recover, even if there is a big correction in commodities looming. OR at just 5% loss so far do I get out now?

Answer
Commodities investing is pretty high risk in the scheme of things so last week's setback, while painful, is not out of the norm.

Provided you're comfortable investing for 5-10 years or more I'd be inclined to stay put (in general, I haven't researched the companies you've bought shares in), as I think the long term outlook for both hard and soft commodities is good, largely thanks to growing emerging markets demand. Take a look at my articles here, here and here.

Shorter term price movements are very difficult to predict. There's little doubt that an influx of investors have driven up prices of hard commodities over the last year or two, so if some of those investors subsequently decide to sell and reinvest elsewhere (as happened last week) prices will fall. But then there's a fair chance other investors will dive in, pushing prices back up again. Plus, of course, there's the potential impact of unpredictable global events and politics.

Just bear in mind that by investing in individual companies you run operational risk (e.g. if something goes wrong with their mines or production - e.g. BP), although shares in commodity companies tend to rise by more than underlying commodity prices during the good times.

Read this Q and A at http://www.candidmoney.com/questions/question467.aspx

Should I join Lloyds Action Now?

Question
I have shares in Lloyds TSB and recently recieved a letter from Lloyds Action Now saying that they were taking action against Lloyds on behalf of shareholders but would require nearly £300 from me to fund the action and I would be excluded from any compensation if i did not join (most of my shares were puchased after the HBOS merger).

I'm not to sure what this is about or whether it's to my advantage, what's your advice?

I also own shares in Minmet which disapeared 3 or 4 years ago and suddenly I've recived an annual report for 2009 and a voting from, but i can't find anything out about what's happened to this company or if in the future the shares will have some value. Do you know anything?Answer
Lloyds Action Now is a group of Lloyds TSB shareholders (currently around 4,000) who are fighting for compensation with respect to losses they incurred following the Government's merger of Lloyds TSB and Halifax Bank of Scotland (HBOS). Their main bone of contention is that the Government didn't disclose the extent it had propped up the ailing HBOS, whose precarious financial position appeared to have a big downward affect on the Lloyds TSB share price following the merger.

The Group is a not for profit organisation trying to build up a fighting fund to take the Government to court. The contribution required to join is £300, or £270 if you apply online (plus 3.6p per share if you own over 750 shares), although if you own fewer than 250 shares you only need pay £60 now - the balance will be paid from any compensation payout. It's hoped the money raised will be sufficient to cover legal costs (and the costs of trying to increase membership shorter term), but if more money is required to fight the case the Group plans to seek this from a litigation funder (someone who backs the case in return for a cut of any winnings) rather than members.

Should you join? In the first instance I'd check whether you might theoretically be entitled to compensation, given most of your shares were purchased post merger. Take a look at the Lloyds Action Now website which has a simple tool to help establish this.

If you are eligible then it's really a case of whether you want to gamble £300 for the opportunity to potentially win compensation in future. Such court actions can be lengthy affairs, so it might take years before a verdict is given. And trying to successfully predict the outcome now is nigh on impossible. If there's potentially thousands of pounds at stake it might be worth taking a punt, but bear in mind you could be in for a long, uncertain wait.

Minmet was an oil and gas exploration company, delisted from AiM in 2008 following controversy over the way the company had handled its cash and failing to disclose information to its shareholders (more info here). It's now trading as Aventine Resources PLC and the 2009 Annual Report you've received suggests the company is trying to sell off its largest investment, shares in Tucumcari Exploration LLC (a part-developed Mexican gas and pipeline infrastructure). I know very little about the company, but from skimming through the report I think there's a slim chance your shares will have some value in future. But given you have little practical option but to stay put let's keep our fingers crossed!

Read this Q and A at http://www.candidmoney.com/questions/question466.aspx

The ETF risks you ought to know

Exchange traded funds (ETFs) have soared in popularity, but should you be concerned about their 'hidden' potential risks?.

ETFs are big business and, in general, a great idea. They provide a low cost way to track a dizzying number of indices across assets including stock markets, fixed interest, commodities and property. And because they're traded on stock markets buying and selling is both fast and simple.

However, there are a couple of risks (aside from the tracked index falling) that you should be aware of. Graeme mentioned these is his recent article, so I thought I'd further explain so you can gauge the risks for yourself.

Apologies if you find this a bit long-winded and technical, but that's unfortunately just the way it is. I'll try and explain things as clearly as I can!

Synthetic ETF risk

There are basically two ways an ETF can track an index. It can either buy the physical underlying stocks (often called 'securities') or buy a piece of paper from another financial company that promises to pay the index returns (called a 'swap').

When an ETF buys underlying securities it should be pretty safe. For example, a FTSE 100 tracker would buy shares in all the FTSE 100 companies and then give them to a third party custodian (usually a large bank) to look after. If the ETF provider goes bust your fund should be unaffected as the shares are still safely held by the custodian.

ETFs that use swaps are tracking the index synthetically, as they're using promises on bits of paper rather than physical securities to provide index returns. Nothing wrong with this per se, but you're now relying on another financial company honouring their promise in order to receive the index returns - this is called counterparty risk.

Synthetic ETFs must, under EU law, limit this risk to 10% of the fund per counterparty. They might do this by using lots of different counterparties and/or ask counterparties to stump up some security (called 'collateral') to protect against them breaking their promise. For example, an ETF using one counterparty would need to get collateral of at least 90% of the fund's value to ensure it meets the 10% counterparty risk rule.

Collateral is a good idea, but there's a risk that if it needs to be used it won't be worth as much as expected. That's because the collateral doesn't have to be the same securities as the index being tracked. So a synthetic FTSE 100 ETF could theoretically hold shares in small companies or junk bonds as collateral - stuff that might prove hard to shift in a hurry at the price assumed by the ETF in its collateral calculations.

Stock lending risk

ETFs that buy physical securities can still suffer counterparty risk if they decide to lend some of their securities to someone else. Why would they do this? Simple...to earn more cash.

Lots of financial institutions like to borrow stocks as it can help them profit if prices fall. For example, a bank might borrow stock from an ETF, sell it straight away on the market, then later buy back the same stock (hopefully at a lower price to make a profit) when it's due to return the stock to the ETF. In return for borrowing the stock, the bank will pay the ETF a fee.

ETF managers generally split this fee about 50/50 with the fund itself (i.e. investors) - iShares splits it 60/40 in favour of investors.

This doesn't sound a bad idea, but what happens if the counterparty doesn't return the borrowed stock? Well, as per above the ETF would normally hold collateral to limit counterparty risk within the rules, but in a worst case scenario you could lose up to 10% per counterparty - possibly more if the collateral ends up being worth less than the ETF expected.

The extent ETFs lend securities varies between funds, it could typically range from zero to more than a quarter of the fund. The revenues from securities lending will obviously vary accordingly, but when used heavily could add a percent or more to annual fund performance.

Securities lending is not a bad thing, lots of funds (not just ETFs) do it. The key is to understand the extent and to whom a fund lends stock, how much money it receives in return, the split of lending revenue between the fund/manager and the amount/quality of collateral is held.

Once again, not all this information is readily available, if at all. iShares, which offers more physical securities (rather than synthetic) ETFs than most, publishes securities lending revenues in the annual report & accounts for its funds and lists some (outdated) figures on the extent of lending and collateral held in a brochure targeted at large intuitional investors.

This is better than most, but still falls short and is nigh on impossible to find for a typical private investor.

Wot no compensation scheme?

A big incentive for trying to gauge the counterparty risks mentioned above is that ETFs are not covered by the Financial Services Compensation Scheme (FSCS) and rarely covered by equivalent overseas schemes. So if a counterparty failure ends up losing you money I'm afraid you'll have to take the hit.

Conclusion

Now before you get too scared, let's put all this into context. Counterparties tend to be large banks that very seldom go bust. Yes, Lehman Brothers was a very big counterparty and did go bust, but while we can never say never the likelihood of something similar happening is low.

And even if a counterparty does go bust then no more than 10% of an ETF should be exposed, although it could be more if the collateral held turns out to be toxic hence difficult to sell.

The issue for investors is being able to sensibly gauge these risks. ETF providers tend to tuck away basic collateral and securities lending information, assuming they even publish it, and counterparty information is often scant - in my view a major failing that the regulators should address.

These potential risks don't make ETFs bad, I will continue to use to both physical and synthetic ETFs for exposure to indices that are otherwise difficult to track. But they do mean it's sensible to browse an ETF's prospectus before investing to get a clearer idea of whether it tracks the index physically or synthetically, the counterparties, whether it lends stock and, if so, what cut the fund will receive.

We can live in hope that ETF providers are one day forced to clearly display this information on fund factsheets, including a summary of any collateral held.

Oh...and tax

If you're still awake then a final thing to think about is tax. ETFs are based offshore which means that gains could be taxed as income if the fund hasn't attained either reporting or distributor status. Take a look at my answer to this question for full details.

Read this article at http://www.candidmoney.com/articles/article223.aspx

Declare inheritance on tax return?

Question
Does my wife need to declare an inheritance in her tax return?Answer
No. She will have received the inheritance after any inheritance tax owed by the deceased's estate had been paid - so there's no tax payable in her hands.

Just bear in mind that if she's earning an income or return on the money (since receiving it), for example maybe it's getting interest in a savings account or she's invested it, then the money earned might have to be included in her tax return.

If she doesn't normally complete a tax return then the simplest way to find out if she'll need to is to look at the HMRC website here, which gives a list of criteria for when a tax return is required.

Read this Q and A at http://www.candidmoney.com/questions/question465.aspx

How to hold investment trusts tax-free?

Question
There are several ITs from various providers that provide a good yield. Is there an easy way to hold these so that the income is Tax free. (My SIPP makes an annual charge for holding ITs, and my ISAs have been carefully consolidated under Cofunds - who also don't deal with ITs )

Answer
Yes, but it will mean using your ISA or pension allowance via a stockbroker/platform that allows shares to be held.

I'm afraid this will entail a bit more paperwork, annoying after you've so carefully moved your ISAs onto Cofunds and used a SIPP elsewhere, but it's pretty straightforward.

If you plan to use your ISA allowance for the current 2011/12 tax year then you can simply invest the money via the new chosen ISA provider. Otherwise, you could use some of your existing ISA money by transferring some Cofunds holdings across to the new provider. The money will be transferred as cash, so you can simply invest this once it arrives at the new ISA provider (the process usually takes a few weeks).

As for which ISA provider to chose, look for one that offers low cost share dealing and doesn't charge for the ISA wrapper. The cheapest I've found to date is x-o.co.uk (review here), although Interactive Investor, TD Warehouse and Alliance Trust Savings are also competitive.

If you'd prefer to use a pension for holding investment trusts consider a low cost SIPP provider who doesn't charge to hold shares - see my review of Sippdeal here for a good example.

Note: it's impossible to enjoy truly tax-free dividend income (as the corporation tax paid by companies on profits before dividend income is paid out cannot be reclaimed), but at least within an ISA there's no further tax on dividend income if you're a higher or top rate taxpayer. The same is true within a pension, although when you eventually draw an income it's taxable.

Just a word of warning re: high yielding investment trusts - make sure you fully understand the risks involved. The high yield might be due to the trust borrowing extra money to invest (known as 'gearing') - great when markets rise, but it will exacerbate losses when they fall. Or you might be looking at split-capital income shares, where the return of capital depends on performance between now and the investment trust's wind up date. In the right markets both could prove good investments, but they're arguably more risky than a plain vanilla equity income fund.

Read this Q and A at http://www.candidmoney.com/questions/question464.aspx

How to put money into a pension for children?

Question
I would like to make a gift to my children (early 30s) to be invested in pensions. How do I go about this? Do I or my children get tax relief on the pension contributions?
Answer
It's a simple process where you effectively gift the money to your children and they pay it into a pension, hence they (not you) enjoy the tax relief on contributions.

To make life simpler pension providers will usually let you contribute the money directly on behalf of someone else (e.g. spouse or children), but from a tax point of view it will be treated as if they made the contribution (as per above).

Basic rate tax relief will automatically be given on the contribution, so for every £80 you contribute it'll be grossed up to £100. If the person you're contributing for is a non-taxpayer then the maximum allowed total annual contribution (that enjoys tax relief) is £2,880, which will be grossed up to £3,600 (assuming they haven't already used this allowance). Otherwise, the only consideration is whether your contribution, coupled with any they make (including their employer), pushes their total annual pension contributions above their annual income (capped at £50,000), as those in excess of this are taxed to remove the benefit of any tax relief.

If the child is a higher or top rate taxpayer then they can reclaim the additional tax via their tax return, so a £100 gross contribution would effectively end up costing £60 or £50 respectively.

Any contributions you make on behalf of your children could be viewed as a gift for inheritance tax purposes, a potentially useful way to get money your of your estate provided you live for at least 7 years after making the gift.

As for which type of pension to use, I'd consider a stakeholder or self-invested personal pension (SIPP). The former is simple and generally cheap, the latter gives more investment choice and chosen carefully can also be cost effective. Take a look at our Guide to Choosing a Personal Pension for more guidance.

Alternatively, if your children are members of an occupational pension scheme it would be worth investigating whether paying additional contributions into that scheme would be more cost effective and/or beneficial.

Read this Q and A at http://www.candidmoney.com/questions/question463.aspx