Q. I have a holiday cottage which I rent out to pay the mortgage, and sometimes use myself. I have recently had the council tax bill through, and was wondering whether I qualify for the single person discount, when there are often more people than that staying in it?
A. The answer could actually be better than the single person discount. Provided the property is available to let for more than 140 nights per year (20 weeks) in England, you should be able to have the property switched from council tax to business rates. If the property’s rateable value is less than £6,000, you should qualify for small business rate relief, which until 31 March 2016 is at 100%, meaning you do not have to pay anything. It is worth contacting your local council for details. The building will be valued by the Valuation Office Agency (VOA), who will also check periodically that you are indeed letting the property as a business. The process of switching is quite straightforward, with a few forms to fill in, but you should already have the necessary records for tax purposes if you have been letting the property for long.
Q. I have quite substantial cash savings spread over a number of Banks and Building Societies and was quite comfortable with this until a friend of mine suggested I was losing money every year. She was quite adamant about this. I appreciate interest rates are low but I am receiving some return, therefore how can I be losing money?
A. I think your friend is referring to “a negative real rate of return”. Whilst you may be receiving interest on your savings, which sees a greater amount in your account year on year, when you take inflation into account your money, whilst more than it was year ago, may not have the purchasing power it used to have. For example if you receive 2% interest over any particular year and inflation happened to be 3% in that particular year, the real rate of return you experience is 2% minus 3% which equals minus 1%. In this example this effectively means that although you received a 2% return on your money, the purchasing power of your savings reduced by 1%. Unfortunately, cash deposits tend not to provide returns which match or exceed inflation and this is what your friend is getting at.
That is not to say investors should not hold cash as part or even all of their portfolio, as cash provides capital security, albeit generally at the expense of “a negative real rate of return”.
The alternatives to cash tend to involve taking an element of risk with your savings and this is often why some investors stick with cash.
If you have a question you would like Trevor to answer, please email it to: yourmoney@rwpfg.co.uk or post it to Your Money, Rutherford Wilkinson Ltd, Northumbria House, 21-23 Brenkley Way, Blezard Business Park, Newcastle upon Tyne, NE13 6DS.
0191 217 3340
