The Times - UK (2022-05-28)

the times | Saturday May 28 2022 67

Money

0 Rent-a-room allowance: £7,500
Under the government’s rent-a-room
scheme, you can rent out a room, or
rooms, in your home to tenants and
bank up to £7,500 a year tax-free.
The rooms must be furnished to
qualify, and they must be part of your
main residence, so the rented area can-
not be self-contained.
You can use websites such as spare-
room.co.uk and openrent.co.uk to find
tenants. Spare Room has reported a
surge in interest this year with home-
owners looking to raise extra cash.
If you earn more from renting than
£7,500 you need to complete a tax
return and pay tax on either the overall
rental profit after utility bills and wear-
and-tear costs are taken into account,
or on the rental income above £7,500.
“Don’t forget that you can offset ex-
penses against your income, perhaps
for redecorating and furnishing the
room,” Rosenbloom said. “This doesn’t

go as far as adding an en suite bathroom

since that would add value to your

home. But in your first year there may

be some larger expenses that might be

valuable. However, you can’t claim ex-

penses and the rent-a-room allowance

at the same time — it’s either or. You’ll

need to crunch the numbers to see

which reduces your tax bill more.”

0 Property allowance: £1,000

If you make money from a property

that you own, up to £1,000 is tax free.

Property income is any income from

land or buildings, including rental in-

come from a flat or house, or even a

parking space. It might also include

money made from a caravan, a caravan

pitch or a houseboat. However, if your

expenses are more than your income

you may be better off claiming expens-

es instead of the allowances.

This allowance cannot be added to

the rent-a-room allowance.

T

he interest rate on the average

best-buy cash Isa has increased

faster than the Bank of England’s

base rate over the past year.

The average best-buy cash Isa has

had its rate climb 0.75 per cent over the

past 12 months while the base rate, by

comparison, is up 0.65 per cent.

The increase in the cash Isa rate is a

positive for savers, but the average

1.26 per cent rate remains well below in-

flation, which is 9 per cent. This means

that our savings are being eroded.

Interest rates on cash Isas are meagre

because of a decade of low interest rates

and a lack of bank competition. The big

Making

the most

of my

allowance

Sean Bagguley only

withdrew about £12,000

from his pension pot for

the first few years of his

retirement in a bid to

minimise his tax bill

(Imogen Tew writes).

Bagguley, 59, retired

from his financial

services role five years

ago and lived off cash

savings for the first year.

Once he turned 55

he withdrew a salary,

which kept him below

the personal allowance

of £12,570.

“I wanted to keep

below the threshold

for tax purposes,” said

Bagguley, who lives in

Staffordshire with his

wife, Angela.

When he retired

Bagguley transferred

a defined contribution

pension and a defined

benefit pension into a

self-invested personal

pension (Sipp) with

AJ Bell. He is invested

in five investment trusts:

Scottish Mortgage,

Monks, Mid Wynd

International, Martin

Currie Global and

Smithson. Bagguley

withdraws about

6 per cent of his total

pension pot each year

with the aim of only

withdrawing returns.

Cash Isas climb faster than base rate

David Brenchley Bank tops the table at 2.25 per cent and

2.35 per cent respectively.

“Isa providers have done a little more

than the bare minimum to make their

rates more attractive,” said Charles In-

cledon at Bowmore Wealth Group, the

financial planner.

“When inflation is higher than the

return you can achieve through hold-

ing cash you are guaranteed to lose

money. In today’s environment, you are

guaranteed to lose a lot.”

A stocks and shares Isa is an alter-

native, although you need to be com-

fortable locking your cash in for at least

a decade, maybe more, and be able to

look through the short-term volatility

of share prices.

five banks no longer need to tempt

savers to join them so the best rates

tend to be offered by challengers.

Virgin Money offers the best interest

rate on a one-year and two-year

fixed-rate cash Isa, at 1.7 per cent and

2.1 per cent respectively, according

to the comparison website Savings

Champion.

For three and five years, United Trust

1.26%

the average interest rate

on a cash Isa

Get advice or go it alone?

Many people end up

paying more tax than

they need to because

they are unaware of all

their allowances.

Getting professional

help with tax can save

you time, effort and

money.

As well as potentially

boosting your take-

home income by

maximising tax

allowances, it can

reduce the risk of

making errors on your

tax return, if you need

to make one.

Nimesh Shah, chief

executive of the

accountancy firm Blick

Rothenberg, said: “It

should be possible to

use these allowances

without needing

professional help, but

HMRC rules can be

complicated. There is

an urgent need for it to

make things easier and

better educate people

on the allowances

available to them.”

Julia Rosenbloom

from the financial

services company

Smith & Williamson

said: “Many tax breaks

are aimed at those on

lower incomes, who are

typically less likely to

take advice.”

Low-income

households can get

guidance from the Low

Incomes Tax Reform

Group (litrg.org.uk). You

could also speak to a

tax charity such as

TaxAid (taxaid.org.uk),

and for those aged 60

or over there’s Tax Help

for Older People

(taxvol.org.uk).