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Perfect Peter warns

Created:
1 October 2008
Updated:
16 October 2008
Written by:
Bernard Jones

MONDAY 8 SEPTEMBER: Junk bonds

Elevenses: Am sitting here in Lemon Curdistan surrounded by Dot's tax forms. The income tax return itself should be simple enough, but I've got the Capital Gains tax form and the notes which allegedly help you fill it in. Then there is IR 284, the ever-so-helpful help sheet to tell you about CGT and shares. I’ve been here for an hour and a quarter, and munched my way through half a packet of chocolate digestives, but I'm still no clearer to finding out what taper and indexation relief are, and how to work them out.

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Eunice arrives in her trendy Chinese silk jacket, and silly little Chinese-style elasticated shoes.

"Goodbye, Bernard, see you later," she says as she kisses me noisily on the cheek.

"Are you staging a re-enactment of the Opium Wars?"

"Bernard, what are you talking about? I'm helping Daphne set up her painting exhibition at the theatre, I told you that. She's already sold two pieces at her 'open house', and we've got the courier, the weekly news and a very nice man from the gazette coming tonight for the press launch. I've got to pick up the champagne and fois gras from Armand's Deli."

"My God, how the other half do live. While you're quaffing Krug and gobbling truffles, do think of me here, trying to fill out these bloody tax forms, won't you?"

"Oh Bernard, why don't you get an accountant like I said? I mean you've been in here, stewing away on this in a foul mood for three days. It's clearly beyond you, and just making you horrid."

"It is NOT beyond me," I thundered. "But of course I'm grumpy. As far as I can establish, the tax bill will eat up almost all of our inheritance."

"But I thought capital gains tax was only 18 per cent."

"I've told you before, that's the rate for this year. This bill is for LAST year. It's 40 bloody per cent."

"Well, she'd still have more than half, wouldn't she?"

"Well, yes, but that was the valuation at the time of the sale in May last year. Since then Dot has given £150,000 to Jem, which has gone God-knows-where, and the rest has been invested in retail shares, many of which have fallen by a half. The upshot is that after a £252,000 tax bill there is only going to be £60,000 in her estate, unless I can work out this indexation relief stuff which will somehow discount the cost of purchase, hopefully all the way back to 1938 when the shares were first bought."

"Well, I did recommend Myra Lingfell-Crabtree. She's done a marvellous job on Irmgard's accounts."

"I'm not having our family business discussed with Irmgard. You know what these accountants are like. They're looser-lipped than Roy Hattersley on Spitting Image."

"But Darling, I've already told Irmgard all about it."

My head slid into my hands. "I don't know what we're going to do. I'm not even sure that we're in Dot's will at all. It's probably all been left to orphaned boa constrictors, deranged donkeys or 'Don't they know its bonus time?' Bob Geldof's emergency appeal for the starving bankers of Canary Wharf."

TUESDAY 9 SEPTEMBER: Call to Perfect Peter

In desperation, I ring the one person who I know will know the answer to this indexation nonsense. Perfect Peter Edgington, a man whose Teflon portfolio never gets stuck in the morass of bear markets, profit warnings and bankruptcies. With tact, I hope to steer away from the issue of the trojan downloaded on Peter's computer by my wicked grandson, and the money siphoned from his bank accounts. Initially cool, Peter listens to my difficulties.

"Well it's pretty straightforward, Bernard. Indexation relief began in March 1982 and allows you to inflate the cost of the acquisition of the shares by a factor, a maximum of roughly 1.7 from memory. I dare say it won't help you much if the cost of purchase was itself negligible." He looks up the figures online when we speak, corrects my calculations for indexation and taper relief, and then gives me a warning.

"Are you still in the stock market, Bernard?"

"Well, sort of. I'm hoping for a recovery, like everyone else."

"There will be one, before the end of the year, don't worry. But if I were you I'd sell everything you can and stay out until mid-October. A US contact of mine said that inter-bank lending in Wall Street has frozen solid, and the investment banks are going to start falling like dominos. I'm completely in cash now."

As soon as I get off the phone I look over my portfolio. I have a simple choice. To realise gigantic losses already incurred, or to sit tight and watch them become bigger still. The press isn't any help. Articles always say 'It's too early to buy X, Y or Z' yet almost everyone is in my situation: they've already got shed loads of these festering shares and don't know whether to sell or sit tight.

MORE FROM THE SAGE OF SUBURBIA...

Read more of Bernard's musings at his IC home page.

Write to him at bernard.jones@ft.com

You can buy the two Bernard Jones books at a discount in the IC bookstore.

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