Questions of Cash: Can we sue over our endowment shortfall?

Q. We were sold two Legal and General endowment policies in 1990 and 1994 by a mortgage adviser.

Q. We were sold two Legal and General endowment policies in 1990 and 1994 by a mortgage adviser. He assured us that these policies would pay off the mortgage and failed to advise us that the products were share-based and subject to risk. They are now projected to mature at least £14,000 short of the mortgage value.

When we complained to Legal & General it said it could find no evidence of mis-selling. We complained to the Financial Ombudsman Service, but they say as we had a £25 a month savings policy with Marks & Spencer this was evidence of financial awareness and our case was rejected. We cannot convert our interest-only mortgage to a repayment one as the higher monthly payments are unaffordable. I have been ill with depression and anxiety for six months as a result. What can we do?
CN, Gateshead

A. You have done the right things in submitting complaints first to Legal & General and subsequently to FOS, obtaining reviews of its adverse decision from both an arbitrator and then an ombudsman.

There is no further complaint or review procedure available to you, beyond taking legal action. Your right to sue is not affected by having taken your case to the ombudsman. In your case it is unclear who you would sue: you apparently complained against Legal & General, but you say that a mortgage adviser sold you the policy. In any case, taking legal action is extremely risky. It is very unusual for the courts to find differently from FOS - though we agree that, on the face of it, the FOS judgement seems harsh.

If you are tempted towards this action you might take advice from a Citizens' Advice Bureau in the first instance. There is otherwise no easy solution to your problem. Unless you can find access to another source of finance you may have to sell your home and move into a cheaper property, using the surplus capital to pay off the mortgage. You have our sympathy.

In February 2002 my father died. Examination of his will by a solicitor suggested that he had been ill-advised in its composition. A Deed of Variation was made, which should have resulted in an inheritance tax rebate of £90,000 to £110,000. The Inland Revenue has been sitting on the paperwork for months. What is a normal period of delay in these circumstances? Is the IR subject to any form of performance audit? Are penalties payable by them in recognition of the delay? What remedies are open to me? SF, by e-mail

Tim Cripps of the accountant Moore Stephens says: "The Inland Revenue has produced a booklet, 'Code of Practice 1', which gives details of who to complain to in these circumstances. You should ask the Inland Revenue for a copy." Mr Cripps adds that your consolation is that the Revenue pays a very good rate of interest and that you can look on this as a good investment.

Q. We recently became grandparents and wish to invest £3,000 for our grandchild for when he reaches 18. We realise that there are many types of investment available. We are thinking of setting up a trust fund to help us invest in shares through a unit trust. Would this be expensive to set up?
DT, by e-mail

A. For an investment of £3,000, you should avoid a complex and expensive approach such as a trust fund. Choosing the best means of investing for children is in any case confusing, as advisers often provide conflicting advice. Nick McBreen of Worldwide IFA suggests six possible ways of investing. You and your spouse might set up a mini-ISA, using up your personal allowances for the current tax year, which you can effectively nominate to your grandchild but which you will retain total control of for the time being. He suggests using the funds Jupiter Financial Opportunities or Fidelity Special Situations, using a fund supermarket such as Cofunds or Funds Network to review investments and switch between funds.

Alternatively, you can invest in an investment trust which you can maintain responsibility for, or delegate to the child's parents. He suggests F&C Investment Trust, which is the oldest and has been very successful. The third option is to make stakeholder contributions for the child of £2,808 nett, which becomes grossed up to £3,600.

Although this is not available as cash at age 18, the fund could be available at the time to use with a SIPP (Self Invested Personal Pension), subject to minimum fund requirements, to fund property purchase as a pension asset, which could then be leased back if the youngster needed premises to start a business.

Other alternatives are to put the money in a high-interest savings account for children or a cash ISA, use friendly society children's bonds - which he advises against on current returns - or, from April next year, you can add £1,200 per annum to the Child Trust Fund, which will mature on the child's 18th birthday with no tax liability arising to them as the recipient.

If you have questions, write to Questions of Cash, 'The Independent', 191 Marsh Wall, London E14 9RS, or e-mail cash@independent.co.uk. We can reply only to letters published. Please send copies, not originals.