Personal Finance FAQ

The simplest answer is that savings accounts with building societies or banks that are in the children's names should pay the children interest gross (i.e. without tax deducted).

It's still quite permissible for children to hold shares in companies, even though the tax credits on the dividends are not refundable.

If the children don't have any investments and if you have surplus after-tax income of your own which you can give to your children, this is usually tax free in the children's hands and, if you are particularly wealthy, is a very useful way of transferring income to them, so that the children can accumulate a sum that can then be invested. However, once the income from the source exceeds £100 per annum it will be taxed in your hands. Where you transfer your own shares to your children, if the children are under 18, the income arising on these shares will be regarded as belonging to you, so this does not save tax.

The Child Trust Fund is a tax-free savings scheme designed for children. The Government contributes £250 when the child is born and a further £250 (£500 for lower-income families) at the age of seven. Parents, family and friends can contribute a further £1,200 annually. The child is entitled to the fund at the age of 18 and there will be no restriction on how he uses the money.

Find out how you can pay less tax.

Permanent health insurance policies are intended to provide you with an income should illness prevent you from working. If your employer pays the premium on your policy, they will obtain a tax allowance on the payment they make and you will have to pay tax on any benefit that you receive.

If you make the payments, whether as an employee or as a self-employed person, you will not obtain any tax relief, but any benefits paid to you under these circumstances would be tax free.

Find out how you can pay less tax.

If you're self-employed or a sole trader, legally you must keep records of your income (and any capital gains) for at least five years and ten months after the end of the tax year.

Learn how to understand your accounts here.

If you are self-employed, while you will be paying into your state pension by means of your National Insurance contributions (assuming you are paying them) you won't have any other pension scheme available unless you are paying into one. You are strongly advised to consult an independent financial adviser to set you up with a scheme most suitable for you.

Find out all about self-employment and becoming self-employed.

When you reach retirement, you may decide that you want the certainty of a guaranteed level of income for the remainder of your retirement. This type of pension income is known as an 'annuity' and is the traditional way of taking benefits. What will happen is that the pension company will take your pension fund (less your tax-free cash sum if you decide to take it) in return for guaranteeing a specific level of income.

The annuity will cease upon your death unless you have made provision for your spouse or partner to continue receiving all or part of that income for the remainder of his or her lifetime. Of course, some people live longer than others and will therefore receive greater benefit from the terms that they have secured with their pension company, whilst others die sooner than expected.

Monies gained by the pension company from not having to pay a pension for as long as they originally expected to one person will be used to subsidise the extra cost of funding those who live longest. Under current regulations, you are required to purchase an annuity by the age of 75 if you have one of the following types of pension plan:

• Personal Pension
• Stakeholder Pension
• Retirement Annuity
• Free Standing Additional Voluntary Contributions (FSAVC)
• Section 32 Buy-Out Bond

Self Invested Personal Pensions (SIPPs) allow you direct control over the investments in your pension scheme. They provide maximum flexibility in the timing of contributions into, and benefit payments from, the scheme.

An example of such flexibility is that a SIPP allows you to withdraw up to 25 per cent of the fund tax free between the ages of 55 and 75. You can then use the balance to provide income for the rest of your life.

Self Invested Personal Pensions also provide an attraction for Inheritance Tax purposes because if you die before retirement, the whole of the value of the SIPP is excluded from your estate.

There are many assets that can be included in a SIPP, but some are specifically excluded (e.g. residential property, works of art, fine wines and vintage cars).

One advantage of a Self Invested Personal Pension is the opportunity it provides for investing in smaller companies. Another is that a SIPP can borrow up to 50 per cent of its value.

Find out more about pensions in our book Tax Answers at a Glance.

Stakeholder Pensions are low-cost private pensions, available from 6 April 2001. They are meant for people who currently don't have a good range of pension options available, so they can save for their retirement.

If you earn more than £30,000 per year and are in a company pension scheme, you cannot take out a Stakeholder Pension as well. However, everyone else can have a Stakeholder Pension, even non-taxpayers, non-earners and children.

Contribution limits are based on earnings, but even if you don't have any earnings, you can pay up to £2,808 into a Stakeholder Pension and this will be topped up to £3,600 by the Government.

Employers with more than five employees have to provide access to Stakeholder Pensions with effect from 6 October 2001.

There are plenty of options, depending on whether you are happy to go it alone or would prefer the help of a financial expert.

• Buy direct from the company - if you know what you want, you can ring their call centre or talk to a company sales adviser; however, they will only be able to talk about their own product range.
• Go to your own bank or building society - again, they will only be able to talk to you either about their own products or those of one particular insurance company with whom they are affiliated.
• Seek advice from an Independent Financial Adviser (IFA) - if you're not sure what you want, Independent Financial Advisers (IFAs) are able to look at the whole market and advise on the most suitable product for your needs. For this they will either be paid a commission or charge you a fee and this will be agreed at the initial meeting, which is often free. Independent Financial Advisers (IFAs) are regulated by the Financial Services Authority (FSA).
• Buy through the internet - there are hundreds of personal finance sites and obtaining information is now easier than ever. That said it can be overwhelming.
• Use a discount broker - if you know exactly what you want, you can save money through a discount or 'execution only' transaction by not asking for advice. What happens is that you buy the product and the broker refunds a proportion of the commission into your plan.
• Select a product offered by a non-financial company - you can buy your financial products from many of the big supermarkets and store groups nowadays by phoning or logging on to a specialist website.

ISA stands for Individual Savings Account. They are free from Income and Capital Gains Tax. The maximum annual investment is £7,000 of which £3,000 may be in cash. In April 2008 the £7,000 limit will rise to £7,200 and the £3,000 limit to £3,600.

Find out how you can save tax.

Yes. The Child Support Agency assesses all fathers in the same way.

Any money put into a joint account is treated as jointly owned so either of you can remove it at any time, even if one of you put in more money than the other.

Yes. The bank or credit card company can chase both of either of you for the whole debt.

No, so you should both be making a will immediately.

If your partner dies without making a will their estate will be distributed among their blood relatives in accordance with the rules of intestacy. If you are not married (a.k.a. cohabiting) you may well not be entitled to any of their estate.

• Read more about intestacy and making a will.
• Read more about the cohabitation risks you face under current law.
• You could be making a will today with Lawpack's DIY Will Kit. Find out more now.

If you're being pursued by a creditor for an old debt, you may be able to ignore it on the ground that it has time-lapsed. This is six years, except in Scotland where it's five, but this only applies if no legal action has been taken against you on the debt, and you have not acknowledged it during the time. If you do now acknowledge it as a result of the creditor contacting you, you will reactivate the debt, so take advice before doing anything.

All chartered accountants are members of the Institute of Chartered Accountants, who will assess your complaint to decide whether conciliation is appropriate or alternatively, carry out an investigation.

Other accountants may be members of the Association of Chartered Certified Accountants, the Chartered Institute of Management Accountants, or the Chartered Institute of Public Finance Accountants. Book-keepers may belong to the Institute of Chartered Secretaries. All of these bodies will investigate and may take disciplinary action against the accountant if your complaint is upheld.

Need to find an accountant? Get a free initial meeting with TaxAssist Accountants.

The divorce court has the power to divide pensions by ordering a certain percentage of the value of a husband's pension to be transferred into a new pension plan for his wife. This is known as a 'pension sharing order'. Alternatively, a husband and wife might agree that the husband retains his pension but makes periodical payments to his wife from his pension income when he begins to receive it.

The question of pensions and a possible division of them becomes far more relevant if the marriage is of reasonable duration, the parties are over the age of 40 or the pensions are of significant value.

Find out more about divorce and DIY divorce.

In principle, it's illegal for a director to borrow money from their own company. Small expense sums are allowed to be borrowed in advance, but if a substantial sum is borrowed, not only does tax have to be paid on the sum borrowed (this sum is repaid by the Inland Revenue when the loan is repaid), but in addition, interest has to be paid on the beneficial effect of enjoying what is normally an interest-free loan. The short answer to this question is 'no'.

Find out more about self-employment and being self-employed.

No, but you should still have a business plan stating what you are planning to do and what you want to achieve. 

Prepare a table or spreadsheet including your planned figures, for example, the prospective number of customers, the average value of each sale, your sales income, materials bought, overheads, profit, etc.

Or use Lawpack's ready-made business plan template to speed things up!

Find legal forms, advice and information on Starting a Business.