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01_515105 ffirs.qxp 6/14/07 9:16 PM Page i Personal Finance & Investing ALL-IN-ONE FOR DUMmIES ‰ By Melanie Bien,Julian Knight,and Tony Levene Edited by Faith Glasgow 01_515105 ffirs.qxp 6/14/07 9:16 PM Page iv 01_515105 ffirs.qxp 6/14/07 9:16 PM Page i Personal Finance & Investing ALL-IN-ONE FOR DUMmIES ‰ By Melanie Bien,Julian Knight,and Tony Levene Edited by Faith Glasgow 01_515105 ffirs.qxp 6/14/07 9:16 PM Page ii Personal Finance & Investing All-in-One For Dummies® Published by John Wiley & Sons, Ltd The Atrium Southern Gate Chichester West Sussex PO19 8SQ England E-mail (for orders and customer service enquires): [email protected] Visit our Home Page on www.wiley.com Copyright ©2007 John Wiley & Sons, Ltd, Chichester, West Sussex, England Published by John Wiley & Sons, Ltd, Chichester, West Sussex All Rights Reserved. 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For general information on our other products and services, please contact our Customer Care Department within the U.S. at 800-762-2974, outside the U.S. at 317-572-3993, or fax 317-572-4002. For technical support, please visit www.wiley.com/techsupport. Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. British Library Cataloguing in Publication Data: A catalogue record for this book is available from the British Library ISBN: 978-0-470-51510-5 Printed and bound in Great Britain by Bell & Bain Ltd, Glasgow 10 9 8 7 6 5 4 3 2 1 01_515105 ffirs.qxp 6/14/07 9:16 PM Page iii About the Authors Faith Glasgow has been writing on finance and property for longer than she cares to remember, and has freelanced since 1998. She has contributed to a wide range of publications during that time, including most of the broadsheets and magazines from Vogueto Investors Chronicle. Faith lives in London with a small family and a large mortgage, and occasionally muses on the fact that she still has to work for a living, given the reams of advice on how to manage one’s wealth that she has dispensed over the years. Sadly, hers is a classic case of ‘Do as I say, not as I do’. Melanie Bienis associate director (head of media relations) at Savills Private Finance, the independent mortgage broker. She was personal finance editor of the IndependentonSundayfor five years and writes freelance property features for national newspapers, magazines, and Web sites. She has written several books and pamphlets to accompany television programmes on property makeovers and design, and on buying, renovating, and selling property. Her other books include Sorting Out Your Finances For Dummies, Buying a Home On a Budget For Dummies, Buying and Selling Property For Dummies, and Renting Out Your Property For Dummies. Julian Knightwas born in Chester in 1972, educated at the Chester Catholic High School, and later at Hull University. He is the BBC News personal finance reporter and writes for the BBC News Web site; Julian is the author of Wills, Probate & Inheritance Tax For Dummies, and lives in London with a large mortgage. Before joining the BBC, Julian worked at Moneywisemagazine andcontributed to the Guardianas well as many other publications. Tony Levene is a member of The GuardianJobs & Money team, writing on issues including investment and consumer rights as well as on taxation. Hehas been a financial journalist for nearly thirty years after a brief foray into teaching French to school children. Over his journalistic career, Tony has worked for newspapers including The Sunday Times, Sunday Express, TheSun, Daily Star, Sunday Mirror, and Daily Express. He has written seven previous books on money matters including Investing For Dummies and Paying Less Tax For Dummies. Tony lives in London with his wife Claudia, ‘virtually grown up’ children Zoe and Oliver, and cats Plato, Pandora, and Pascal. 01_515105 ffirs.qxp 6/14/07 9:16 PM Page iv 01_515105 ffirs.qxp 6/14/07 9:16 PM Page v Editor’s Dedication For my beloved Mum and Dad. Editor’s Acknowledgements Many thanks to the specialists who helped in the updating of complex information in this book, particularly Paul Causton of Steele Raymond, TomMcPhail of Hargreaves Lansdown, and the HMRC press office. 01_515105 ffirs.qxp 6/14/07 9:16 PM Page vi Publisher’s Acknowledgements We’re proud of this book; please send us your comments through our Dummies online registration form located at www.dummies.com/register/. Some of the people who helped bring this book to market include the following: Acquisitions, Editorial, and Composition Services Media Development Project Coordinator:Jennifer Theriot Project Editor: Daniel Mersey Layout and Graphics: Claudia Bell, Content Editor:Steve Edwards Denny Hager, Heather Ryan, Alicia B. South Commissioning Editor: Alison Yates Proofreaders:David Faust, Susan Moritz Text Splicer: Helen Heyes Indexer:Aptara Executive Editor: Jason Dunne Executive Project Editor: Martin Tribe Cover Photos: ©worldthroughthelens/Alamy Cartoons: Ed McLachlan Publishing and Editorial for Consumer Dummies Diane Graves Steele, Vice President and Publisher, Consumer Dummies Joyce Pepple, Acquisitions Director, Consumer Dummies Kristin A. Cocks, Product Development Director, Consumer Dummies Michael Spring, Vice President and Publisher, Travel Kelly Regan,Editorial Director, Travel Publishing for Technology Dummies Andy Cummings,Vice President and Publisher, Dummies Technology/General User Composition Services Gerry Fahey,Vice President of Production Services Debbie Stailey,Director of Composition Services 02_515105 ftoc.qxp 6/14/07 9:16 PM Page vii Contents at a Glance Introduction.................................................................1 Book I: Organising Your Finances and Dealing with Debt..................................................7 Chapter 1: Figuring Out Financial Goals, Financial Budgets, and Financial Advisers....................................................................................................9 Chapter 2: Choosing the Best Current Account for You..............................................27 Chapter 3: Covering Yourself with Insurance...............................................................37 Chapter 4: Tackling Your Overdraft and Other Credit Nasties...................................51 Chapter 5: Choosing a Credit Card.................................................................................71 Chapter 6: Weighing Up Personal Loans.......................................................................83 Book II: Paying Less Tax.............................................95 Chapter 1: Understanding Tax Basics............................................................................97 Chapter 2: Dealing with Self Assessment....................................................................111 Chapter 3: Taxing Family Situations.............................................................................125 Chapter 4: Understanding Tax When You Work for Someone Else..........................145 Chapter 5: Working for Yourself Can Be Less Taxing.................................................171 Chapter 6: Taxing Your Savings and Investments......................................................187 Book III: Building Up Savings and Investments...........217 Chapter 1: Squaring Risk and Return...........................................................................219 Chapter 2: Saving for a Rainy Day................................................................................233 Chapter 3: Choosing a Mortgage..................................................................................243 Chapter 4: Making the Most of Tax-Free Savings and Investments..........................263 Chapter 5: Delving Into Collective Investments.........................................................275 Chapter 6: Scrutinising Shares and Bonds..................................................................299 Chapter 7: Investing in Bricks and Mortar..................................................................329 Chapter 8: Making Exotic Investments........................................................................343 Book IV: Retiring Wealthy.........................................355 Chapter 1: Planning for a Wealthy Retirement...........................................................357 Chapter 2: Making the Most of State and Workplace Pensions................................369 Chapter 3: Picking Through Personal Pensions.........................................................395 Chapter 4: Taking Control with a Sipp.........................................................................409 Chapter 5: Working with Your Pension........................................................................419 Chapter 6: Using Property for Retirement..................................................................439