THIS TRANSCRIPT IS ISSUED ON THE UNDERSTANDING THAT IT IS TAKEN FROM A LIVE PROGRAMME AS IT WAS BROADCAST. THE NATURE OF LIVE BROADCASTING MEANS THAT NEITHER THE BBC NOR THE PARTICIPANTS IN THE PROGRAMME CAN GUARANTEE THE ACCURACY OF THE INFORMATION PRINTED HERE.

MONEY BOX LIVE

Presenter: Paul Lewis

Guests: David White, Moira Elms, Julian Crooks

TRANSMISSION 17th DEC 2001 1500 - 1530 RADIO 4

ANNOUNCER : It's two minutes past three and time for MONEY BOX LIVE with Paul Lewis.

LEWIS: Hello and today we answer your questions on giving money to children. Christmas is coming and while the child may not find money a very exciting present to receive, it can be exciting to have when they get older. The advantage of saving for children is that the money has many years to grow - compound interest has rightly been called the eighth wonder of the world. You can also plan towards a specific date - an 18th birthday or entrance to university. But with stock markets very flat, if not falling, what is the best way to save money for children? Are childrens' savings accounts a good idea? Should you start a stakeholder pension, and how do you make sure that a child doesn't pay tax?

Of course giving money is not just about saving, it's about giving children the chance to get used to handling money and understanding about interest and maybe even risk. So perhaps you want to give premium bonds or a small amount of cash and want to know when your child or grandchild will be able to handle it themselves. And what happened to those plans for a government backed child trust fund announced by the Chancellor?

Whatever your question you can call Money Box Live now - 08700 100 444 And with me today to answer your questions about investing for children are Julian Crooks who's the principle at the Financial Planning Services, an independent finance advisors in Sheffield, Moira Elms who's a partner at the accountants Price Waterhouse Coopers, who specialises in personal finance, and David White - Chief Executive of Tunbridge Wells Equitable Friendly Society which specialises in saving for children. And the first question is from Eileen who's calling us from Bristol. Eileen your question?

EILEEN: Oh just to say thank you first of all because thanks to you I bought some Orange shares so I've got a little cash put aside.

LEWIS: Goodness, I don't know that we ever advised that, but anyway I'm very glad you've got some money Eileen anyway - what are you going to do with it?

EILEEN: Well I've got three grandchildren in this country - 10, 8 and 6, and I've got a new one in France, and everybody says put into the stock market not the building society but I don't really know how to go about it for grandchildren.

LEWIS: Right, so you want to save some money for grandchildren. Just let me ask you what sort of amount we're talking about?

EILEEN: Probably a �1000 each

LEWIS: A �1000 each for four children. Well let's start with Moira Elms Moira, what is the best way to build up a fund for children like this?

ELMS: It very much depends on the age of the children and what you're trying to save for. Different investments will appeal depending upon the circumstances: how long are you able to invest? What do you plan to do with that money - is to pay for university? Is it to set them up in home? Or is it to pay for something in the near future? And that will govern whether you go into something that's safe and not risking your capital to equity markets, or if you're investing for longer periods you might want to look at stock market investments because you can afford to play the waiting game.

LEWIS: Of course people are nervous of stock markets even over the long term aren't they - yes David White?

WHITE: Well I think this is a very important point - people have seen the stock market drop significantly in the last 18 months and it's really important if you're going to give the money to the children on a specific birthday perhaps - 18 or 21 - that somehow the money is managed towards their 18th or 21st birthday, so it's important to get some advice as you go along or put it into something now that's going to manage the money towards those birthdays for you.

LEWIS: So you're saying don't just rely on the stock market growing, but as the 18th birthday approaches start putting it somewhere safer to crystalise or protect the gains - Julian Crooks?

CROOKS: I think that's absolutely right - the age of Eileen's grandchildren - 10, 8 and 6 - that's certainly a long enough time I would imagine for stock market linked investment to be worthwhile.

LEWIS: We don't know that though do we?

CROOKS: Well I would imagine Eileen, correct me if I'm wrong, would you like them to access the money at age 18 or after?

EILEEN: That's right yes

CROOKS: Yeah okay, in that case then certainly if you've got 5 to 10 years to think about then I would see no problem at all with stock market type investment. You've really not got a sufficient size - �1000 per child to think about investing in a particular stock or range of shares so the best thing to do is to think about a collective investment, so that's a unit trust or an investment trust whereby your risk is spread and you have quite a degree of diversification within the one pot which will be easily manageable for you.

LEWIS: But in practical terms of course children can't own those unit trusts or shares themselves - how does Eileen go about putting it into their name and setting up a structure so it's their money?

CROOKS: There are one or two ways to do it. The more complicated way would be to set up a trust for them. I suspect that on the amounts that we're looking at it really wouldn't be worthwhile so what we'd be doing is just setting up a unit trust, an investment trust either in Eileen's name or in the name of the parent, but designated for the child which simply means adding the child's initials to the name of the holder.

LEWIS: Okay, well thanks for that call Eileen and good luck to you and indeed your grandchildren. Let's talk now to Fiona who's in Sevenoaks. Fiona, your question?

FIONA: Well I've got 6 grandchildren aged sort of basically 4,5,6, 7, 8, 9

LEWIS: I can see we're going to have a grandchildren competition on this programme today, but go on.

FIONA: I want a very simple thing - I think you can - you can give �250 per annum to as many you know sort of tax wise - if I started off with �250 in this tax year - I mean it's soon going to be April again so I could make it into �500 quite soon. I just want something very simple. I looked into stakeholder pensions but because you've got to take an annuity out so I'd rather have something that was more sort of flexible.

LEWIS: Okay well I mean you can give as much as you like away - it's just that Moira Elms it's just - this is inheritance tax that Fiona's talking about here isn't it?

ELMS: That's right. For inheritance tax purposes an individual can give any number of gifts of small amounts and small amounts are categorised as up to �250 and so you can give as many of them to as many people as you like without they're being an - it ever getting on to what's called your inheritance tax clock. But over and above that amount individuals can use up annual exemptions and a very considerable nil rate band which will mean that there will be still no inheritance tax to pay.

LEWIS: Anyway leaving aside the tax implications - Fiona obviously wants to give �250 - 500 a year to these grandchildren- stakeholder pensions good idea?

ELMS: I would say definitely not. The amounts are very small but stakeholder pensions have a place in investment planning but on the basis of the children not being able to access the money until they are 50 or retire, I don't really think that it's the ideal investment for Fiona's grandchildren.

LEWIS: David White you want to talk about stakeholder I know?

WHITE: Yes I thought I heard the stakeholder word mentioned there when you were speaking. I'm very worried about this - I think a lot of people are looking at stakeholder pensions for children. They see this very big tax break that the government quite generously give and they're attracted by it and Moira's quite right - the money's locked up till they're 50 - they're gonna be all these kids in 18 years time with their hands on their hips saying what do you mean my money's locked up till 50 - I need it now. I've got to get through university now.

LEWIS: But of course some parents think it's quite a good idea to keep it locked up beyond 18 don't they? - if not till 50?

WHITE: Well they do but our experience is that when these youngsters get the money at aged 18 they're actually quite sensible with it. Most of them according to - to the surveys they fill in for us are using the money to get themselves through university or some sort of further education or they're buying a car or just starting out in life.

LEWIS: Yes and with university fees at what �6/7000 a year for fees, maintenance and all that kind of thing according to NUS surveys Julian Crooks, it is something you might want to save up for isn't it?

CROOKS: Well certainly it is - I mean I have to say in all the years of financial advice which I've been giving I've never ever had a client or prospective client say to me please can you help me to save for my child's pension - you know it has never happened and I suspect it never will.

LEWIS: So this is an example of investment being driven by a tax break which of course it never should be - you've got to think of your investment objectives and where the money's going to be. But talk to me for a moment about university which could be an objective that Fiona is looking - looking towards. How is the best way to save up for a university education over the lifetime of a child?

CROOKS: If you wanted to be very scientific about it you could actually look at current - current costs of university and inflate it upwards for the number of years which you've got left, come up with a figure, work it backwards assuming a rate of growth of whatever it is - let's say 6% after charges, how much do we need to put aside? Whether it be a lump sum or a regular amount or a combination of both to - to effectively fund - fund that figure.

LEWIS: Well I'm sure you could do that - whether us ordinary mortals could I'm not sure, but I'm sure your financial advisor could. David do you want to come back?

WHITE: We actually provide something called a university calculator where you can visit our website and you can get it and you can work out how much it will cost to send your children to university.

LEWIS: Oh well that's very interesting and useful. I'm sure that link will be on our website if not later today then by tomorrow morning so you can log on to our website which is www.bbc.co.uk/moneybox. - and see that calculator for working out how much it's going to cost to send your child to university - rather frightening website I imagine. Let's move on now to Jean who's in Leeds. Jean your question?

JEAN: I wondered if it's possible to give premium bonds to children quite young children who can't sign their names or anything?

LEWIS: Well I'm sure it is cos I remember I was given one when I was 10 - Moira?

ELMS: Yes you certainly can and I think they make a great Christmas present for small children and small children by my experience are extremely lucky with them and tend to do very well indeed.

LEWIS: Oh you're sounding a bit like Mystic Meg there - I'm sure they're no luckier than anyone else really. So

JEAN: What sort of sums are they sold in now - I'm quite out of touch with them?

ELMS: Yeah they're sold in units of �50 and �100 upwards and the prizes are from you know �50 upwards and you can fill in a form which means that the prizes are automatically reinvested which is another nice little incentive for the children to keep saving the money.

LEWIS: Oh so they win a prize and then they automatically buy more premium bonds?

ELMS: That's right, so they get a nice little congratulations letter but no cheque just a congratulations letter and it's automatically reinvested.

JEAN: Oh but you just go to the Post Office and buy one do you?

ELMS: Go to the Post Office and they can give you the application form.

JEAN: Yes

LEWIS: You have to make sure as I recall, you have to make sure you put the child's name on it so it's their premium bond - there is a danger it will end up being your premium bond though I'm sure you would obviously give them the money if you won. But you have to put their - their name on it and I'd also at this point mention if you've had premium bonds as a child you can actually track them down through the national savings website or indeed through a form that you can get and they will track them down and even if you've lost them they'll send you replacements so you need never miss out on your prizes. Jean thanks very much for your call. Let's move on now to John in Northwich?

JOHN: Hello - oh

LEWIS: John your question?

JOHN: My question is this - my grandchildren were left some - given some money a few years back and in the care of my wife and I and naturally we put it into some - well into a savings account to start off but the rates were so low I withdrew it all and then put it into shares for them. Now this was alright because up to - I think it was last year 2000 I was able on the tax - on the tax dividend that they paid I was able to reclaim it back. Now I find out now that I cannot claim it back for my children even though the tax people know it is in their names cos it's you know - it's like J Oliver care of so and so like you know.

LEWIS: Okay well Moira Elms is nodding wisely - she obviously knows the answer to his one - Moira?

ELMS: Yeah - John I'm afraid what you're experiencing is - is a change in the tax rules. Up until l999 you could reclaim the tax credit on a dividend but as from April l999 dividend tax credits seized to be refundable so I think that's why the Inland Revenue are telling you that you can longer claim back for the children.

JOHN: In other words what you're trying to tell me then is that they're actually paying tax then even though they're only 9s and 12s and that - they're paying for their own health service and education and everything then - partly paying I should say

ELMS: That's right and it was an unfortunate change and it does impact on - on children holding shares where there is - where there is an income distribution each year. But the tax credit is 10% but can't be reclaimed in any circumstances now.

JOHN: And there's no chance of them changing it back again is there? Is there anything in the pipeline?

ELMS: I don't think there's anything in the pipeline - I'd be very surprised because it's - it's a nice little earner.

LEWIS: Oh what a cynic you are Moira. No I think there isn't much chance and in fact I think it's going to get worse in a few years time isn't it? So that particular cash back has gone and not just for children - but for everybody. Let's move on now to Andrea who's calling us from Edinburgh. Andrea your question?

ANDREA: Hello, you have already touched partly on my question which is to do with education. I've got - I've got a child who's minus 2 months old - due in February and my family would like to put some money aside towards the education. And so basically what I'm keen to know is what the most tax efficient high performing sort of place to put that money would be given that we may draw on it - either for secondary education or for university and whether that money should be in the child's name or somebody else's?

LEWIS: Tax efficiency and high yield - I think we all want that. David White, what do you recommend for this kind of saving?

WHITE: I think a couple of things need to be thought about - Andrea is it possible that you could split the money and put some away on a long term basis for when the children are 18 and perhaps some that you might want access to before then?

ANDREA: Mmm - that could be yeah

WHITE: Because if you can afford to do that then that's probably the best thing cos I think you want a long term strategy as we were talking about earlier for their 18th birthday when they're perhaps going to go on to university or want to go off and start - start their life. And then perhaps a different strategy for money you want access to between now and then. For the long term strategy you can by various policies which will grow tax free, but you are restricted to about �25 a month, as to that sort of policy. You can save on top of that but the - the funds will be in the normal sort of tax basis like Moira was describing earlier. For the other money I think my IFA friend on the left here is best qualified to talk to you about it.

LEWIS: Yeah Julian - I mean the amounts can be quite significant if you're going to private schools can't they? I mean I worked out a few months ago it could be - it cost you �200,000 to send a child to a sort of boarding private school between 11 and 18 and that implies saving a lot of money from when they're born. Julian, how is the best way to do that?

CROOKS: Just going back to the - the tax efficiency aspect, I think one point I would make is that the child does have its own allowances both in terms of income tax and capital gains tax, and possibly the one to make the best use of is likely to be the capital gains tax exemption - currently �7,500 per year. Now you really will need to invest quite a lot of money over a reasonable period of time to end up with a gain which after indexation, all the allowances and so on, will actually be in access of that.

LEWIS: Yes cos indexation applies to the past but not to the future now doesn't it?

CROOKS: Sorry as far as taper relief is concerned for the future.

LEWIS: Okay and they also get their own personal tax allowance but Moira Elms, you can't have that on money that you've been given by your parents which is a bit of a problem isn't it?

ELMS: No, that's right. The money given by parents is taxed on the parents subject to a small deminimus amount which is �100 of income per annum per child on gifts from each parent - over and above that though the parent will pay tax, but if the gift comes from grandparents or other relations then the children do have their own tax allowances.

ANDREA: Are you aware what that figure would be sorry?

ELMS: The tax allowance?

ANDREA: For grandparents yeah?

ELMS: Yeah. The child can have income of up to �4,385 in a current year before they'll pay any tax and then they have their own tax rates just like any ordinary tax payer of you know the low rate of 10%, then the next band of 22% tax etc.

LEWIS: Yes it has to be said that to have an income of over �4000 from interest on savings you'd need nearly �100,000 in the bank nowadays wouldn't you?

ELMS: Yes you'd need to be a very fortunate child.

LEWIS: But just to get back to the point about saving up for school - if you want to save for school fees is there a way of putting that money in trust for the children so that no-one pays tax until it's realised at whenever you know -11, 13, 18 - whenever it's needed?

ELMS: Yes there are - there are a variety of ways of - of doing that. If grandparents were able to afford sort of a fairly significant sum of money then they could set up a trust - the type of trust most commonly used for paying for school fees and university education is what's called an accumulation and maintenance trust where the funds accumulate for the benefit of the children but can be paid out for their maintenance which includes paying for their school fees. Those are tax efficient but generally are for quite large sums of money.

ANDREA: At the moment we'd be looking at something like �250 a month for the foreseeable future that we could afford to put away.

ELMS: Yeah I think you want to go for something more simple than - than a full blown trust.

LEWIS: Okay well thanks for your call and there is an independent schools information service where you can get more information if you want to save for school fees and that has lots of other links - there is a website - there's also a phone number, details of that will be with our advice line and on our website probably tomorrow. Let's move on now to North Nottinghamshire where David has a call - David?

DAVID: Hello - hello can you hear me?

LEWIS: David yes your question?

DAVID: My 14 year old son - his education fund is now approaching �20,000 which I've been building up over the last 14 years and I've been chasing the highest interest rates around through fixed interest rates but I'm concerned now how I can prove to Inland Revenue that the money has not all been given by me but by grandparents and siblings - how do I prove that? Is the onus on me to keep detailed records and separate accounts?

LEWIS: Okay well let's see if David White would like to answer that?

WHITE: Well I'm afraid the onus is on you. One of the really important things to do if grandparents and others start saving for your children is to have a letter - I know it seems a bit strange a letter between you and your father, but have a letter, you know a sort of exchange of letters where granddad says he's going to save and so on and you acknowledge that and say what you're going to do with it, and then if it's a regular amount which is being saved and it's done by direct debit and such like keep copies of the bank statements. I'm afraid the onus is indeed on you to prove that money came from somewhere else.

LEWIS: So it's important if a grandparent does give a gift this Christmas to write a letter accompanying it saying I'm giving my grandchild �250 - is that really right Moira Elms?

ELMS: It is. I mean generally our advice would be that you - you try and always keep the funds separate completely - it's the easiest thing so if parents are giving to the children, keep that in one place and where grandparents and others give to the children keep that completely separate from the parents' money.

LEWIS: We've had a few calls too

DAVID: Very difficult because sometimes the fixed interest rate bonds mature and then the money has to come back to say my account and for me to reinvest it again.

LEWIS: Well, Moira's looking slightly puzzled at that - but let's just say that if you've got that sort of money and you're worried about tax I mean my advice is go and talk to an accountant because you really need face to face detailed personal advice and if it costs you �200 or �300 I'm absolutely sure David it would be money well spent. We've had quite a few calls from people saying I want to invest for a child - do I need their birth certificate - do they need a birth certificate? - David?

WHITE: No

LEWIS: Easy answer to a simple question. Okay let's move on - and we have Charles now calling us from London - your question Charles?

CHARLES: My question is if I choose to invest for my children by buying them �50's worth of government stock - when the price of investments in government stock went up to �12 it became impossible to buy �50's worth of stock cos the investment costs on the stock price would cost too much to make the whole investment worth doing?

LEWIS: Well that's one of the problems of things - things cost money and giving small amounts is difficult - it's like premium bonds where the minimum now - when I was young I got my premium bond when I was 10 it was only �1 - now it is �100 minimum to invest in premium bonds and similar things Julian about making investments in government stock.

JULIAN: I have to say I'm not that familiar with the - the levels of minimum investments on government stocks - certainly in terms of other stock market collective type investments there are some very attractive schemes with very low minimum levels of investment - for instance �150 as a lump sum, �20 or even �10 per month as a regular amount which is you know very, very flexible.

LEWIS: It's ironic isn't it that the government is making the industry bring down the minimum costs but seems to impose quite a hefty one on buying government stock.. Well there doesn't seem to be an answer Charles - it just seems to be one of those things we all have to live with and maybe it's worth thinking about another kind of investment for your children or grandchildren. Thanks for your call and let's go to Dorchester now where Jane is waiting to talk to us?

JANE: Oh hello yes I've got some Tunbridge Wells Childrens' bonds which come out for my - he's 17 in April - and I've got 2 of them which mature and I'm just wondering what to do with the cash when they come out?

LEWIS: Well I think I have to say at this point who better to ask than David White who's chief executive of Tunbridge Wells - no doubt he's got some way of earning more money off you - David, what should Jane do with this?

WHITE: It never ceases to amaze me that we have so many members and they do listen to these programmes - well firstly I'm sure the return will be a very good one.

JANE: I'm hoping so

WHITE: I'm sure it will be.

LEWIS: I'm sure if it's not you'll ring us up and tell us Jane won't you?

WHITE: I'm sure if it's not Paul you'll invite me back to talk about it. The - how much money are we likely to be talking about do you know?

JANE: I did the maximum I could do for him - I think it was in units of �9 a month and so whatever the maximum was it comes out my account for 10 years, cos the 10 years are up as I say in March I think when he's 17.

LEWIS: So he's 17 and David what can you do with money? - I mean without going into the details - what can she do with this?

WHITE: It's going - you're going to be talking about �1000 or so and it really depends - have you got any idea what he's going on to do?

JANE: No well that's - he doesn't know - he's sort of in limbo at the moment and I didn't want him to have the cash and then possibly do something you know - I wanted him to do something constructive with it so I thought well maybe if I put it somewhere else for a little while then when he you know at 17 it's very difficult to know what you want to do with your life really.

WHITE: I think if that's the case, if there's that sort of level of uncertainty and it's likely that you might want to put the money somewhere for a little while and then want it once a decision's been made, the best thing to do is to put it on deposit and there are a number of bank accounts around that can give you quite good rates.

LEWIS: Moira what are the best rates you can get on savings accounts because interest rates are pretty low now aren't they?

ELMS: They are quite low and again here I might mention ISAs because whilst - Ann's son might not need the tax protection of the ISA - he's over 16, so he can invest in an ISA - and ISAs tend to have the best sort of cash rates and are currently getting between 4 and 5% depending on the account which is a bit more than the base rates, so worth considering.

LEWIS: And what about childrens' accounts generally - are they are a good deal or are you better leaving aside whether they've got the word children in the title and looking for the best deal on the market?

ELMS: To be honest I think it is just a case of looking at the best deal in the market based on your circumstances because some of the accounts that are marked as children's have bells and whistles attached but the underlying interest rate's not particularly attractive.

LEWIS: Yes or even teddy bears sometimes. And David White this comes back to your point I suppose that in a sense Jane has made the money for her son - he might need it quite soon so don't risk it all - keep it somewhere completely safe?

WHITE: Yes, there's some uncertainty here and this money shouldn't be going back into the stock market at this stage until there's much more certainty around what it's going to be used for.

LEWIS: Okay let's take a call now from County Down where Ann is calling us - Ann?

ANN: Good afternoon

LEWIS: Your question?

ANN: Relatives have given my children gifts of money for Christmas and the kids currently have national savings accounts, but we find these cumbersome because of the long queues at post offices and the minimum deposits they require and having to send them the books to Glasgow for the interest to be recorded.

LEWIS: Yes and the interest rate's not very good. Moira Elms what would you advise here?

ELMS: I think here you really do need to just look for an account that's got a competitive rate and where it's convenient for you - you know which of the building societies for example or the banks have a local branch with a good service and also have accounts with good attractive interest rates.

LEWIS: But you should be looking at between 4 and 5% and instant access and no restrictions and that kind of thing. And Julian Crooks do you get this kind of query from people who just want a good cash account for those odd �10, �20, �30 Christmas presents?

CROOKS: It is a very common question. One thing I would add is that there's a vast discrepancy between the rates that you can get from the High Street lenders, but what you'll often find is that the local building societies will often have very good accounts, but obviously they're only available to people in that locality.

LEWIS: Okay thanks for your call Ann and we're going to quickly take a call from Julia who's in Bourne - Julia quickly your question?

JULIA: Oh good afternoon. I've always been brought up to save and have saved for my children when they were younger. There's a danger now that they're sort of getting into their 20s that they're more interest in spending than saving. So I wondered have you any advice or are there any publications I could get them for Christmas?

LEWIS: Right okay - well I'll pass that on to David White who I know feels strongly about this?

WHITE: This is so important and I think the first thing is to trust the youngsters a bit more - everything we see says that the youngsters are doing something sensible with money but talk to the schools - the national curriculum must now include some education on personal finance and I think talking to the teachers and ask them you know what they're going to include is an important thing to do.

LEWIS: David White thanks - a timely close to the programme because that is all we have time for. My thanks to David White from Tunbridge Wells Equitable Friendly Society, Moira Elms from Price Waterhouse Coopers, and Julian Crooks from the Financial Planning Service. Thanks to you also for your calls and there's information about today's programme with our action line: 0800 044 044 Calls are free: 0800 044 044 Our website is www.bbc.co.uk/moneybox. MONEY BOX LIVE is off the air over Christmas but Vincent Duggleby's back to take your calls on January 7th and I'm back at noon this Saturday with MONEY BOX.

BACK ANNO: That was Paul Lewis and the producer was Louise Greenwood.