UK: Your money matters.

UK: Your money matters. - UNCORKED ANGER

by STELLA SHAMOON.
Last Updated: 31 Aug 2010

UNCORKED ANGER

We had a dinner party for 40 friends at a London restaurant. The manager had agreed to decant the £48-a-bottle wine two at a time and we would pass it ourselves. The waiters, however, ignored 10 opened bottles and kept pouring wine from new bottles into jumbo-sized glasses. Eight people were driving and, at the end of the meal, photos show many full glasses and opened but untouched bottles. I was shocked to receive a bill that included 36 bottles of claret and 18 of champagne. I reckon we were overcharged nearly £800. The restaurant insists I pay in full or they will take me to court.

Pay the part of the bill you do not dispute and let them go to court for the rest - if they dare. Make it clear you will defend the action with photographs showing untouched bottles and huge glasses full of wine set before sober guests. Insist the case be heard in your county court, not in London. The venue should suit you, not them. They are likely to drop proceedings if they: a) have to travel, and b) have to confront the photographic evidence. Next time, get your instructions confirmed in writing and/or make a fuss.

INVEST TO THE MAXI

My wife and I are self-employed and plan to retire in five years at age 60. We invested in Peps rather than private pensions, each putting the maximum £9,000 a year into income and UK share funds, and our investment is worth £220,000. Now that Peps have been killed off, how can we invest tax-free to generate income of £25,000 a year by 2004? Would mini or maxi ISAs be better than a pension?

To generate £25,000 a year, you would normally need about £500,000. If I had a dead cert on how to double your capital in that time, tax-free, I would send you the tip on a postcard from a sunny tax haven. So, while nothing is certain in investment, stick to your strategy of buying shares via a tax-sheltered wrapper. You will receive no tax relief on funds going into the ISA, as you would with a pension, but you will pay no tax on the proceeds and you will retain control and flexibility over your savings.

With a personal pension, you could each take 25% (tax free) from your funds on retirement but would have to buy annuities with the rest. Given low inflation and interest, annuities are not alluring. So forget locking yourself into a pension that would not add up to much in five years' time.

Maxi ISAs are your best bet. Jointly, you can invest up to £54,000 in growth shares over the five years ( £7,000 each in this tax year and £5,000 a year after that).

Switch your Peps from income to blue-chip shares to beef up capital growth, and invest the £36,000 you would have put into Peps in shares of dominant global companies in growth industries. Use your joint annual capital gains tax exemptions ( £7,100 each) to harvest profits or crystallise losses over the years.

HOME-GROWN INCOME

My husband accepted early retirement from a marketing job with a multinational four years ago and, at first, it seemed we would manage on his albeit reduced pension and his redundancy pay-off. Consultancy work has not materialised, however, and even when he gets a contract they pay him months after he completes the work. We are living beyond our means, although we have paid off the mortgage and our three children are independent. How can we boost our income, without having to sell our five-bedroom house? Working in the garden stops us from going mad worrying about money.

Why not rent out a room in your home? You can take advantage of generous Inland Revenue rules which exempt you from income tax if your gross receipts (that is, before expenses) are £3,250 or less. You would not be able to claim any of the expenses of letting against your tax, but if you collect more than the exemption limit of £3,250 a year, you could choose to be taxed on an alternative basis to produce a lower tax bill.

You can opt: a) to pay tax on the profit you make from letting, worked out in the normal way for a rental business (rent received, less expenses); or b) to pay tax on the gross amount of your receipts (including receipts for any related services such as laundry and meals) less the £3,250 limit.

Calculate which would suit you better. For example, if you let out a room for £100 a week, your gross receipts will be £5,200 a year. With a tax-free exemption of £3,250 and expenses of £1,000 a year, your net profit will be £4,200. The excess of your receipts over your exemption will be £1,950 ( £5,200 less £3,250). If you opt for plan A, you would pay tax on your actual profit of £4,200. If you opt for plan B, you would pay tax on a profit of £1,950.

But if you collect rent of £5,400 and have expenses of £3,500, your profit will be £1,900. The excess of your gross receipts over the £3,250 exemption will be £2,150 ( £5,400 less £3,250). If you opt for plan A, you would pay tax on £1,990. If you opt for plan B, you would pay tax on £2,150.

If you enjoyed having a lodger, you might think about turning your home into an up-market bed-and-breakfast business.

Alternatively, you could get £8 an hour (each) for gardening services - that is, £80 a day before tax and expenses for an average of five hours of gardening as a duo.

Opinions expressed are the personal views of Stella Shamoon. Neither she nor Management Today accept legal responsibility, nor will any correspondence be entered into. Address your problems to Management Today at 174 Hammersmith Road, London W67JP, or e-mail: management.today@haynet.com Stella Shamoon writes on private investment for The Times.

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