Q&A

Your personal finance queries answered

Rental income

My family and I live in Dublin in what is our principle private residence. I work in the midlands and, during the week, I live in a second property upon which we have a substantial mortgage.

Up to now I have been living there on my own. However, I am considering taking in one or two people to share the house. I am aware, from your piece in last week's Irish Times, that a room(s) can be rented out in a principle private residence without having to pay tax, once the total income does not exceed €7,500. I assume that I would be unable to avail of this since this property is not my principle private residence.

My query is, given that I have a mortgage on this property with substantial monthly repayments, will I be able to offset some or all of the interest repayments against the income earned from renting out the room(s). If this is in order, and given that I will still be living in the house, I guess I will have to apportion the interest paid on a pro-rata basis?

Mr J.W., Dublin

As you say, you are unlikely to fall within the rules governing the tax relief under the rent-a-room scheme as you cannot have two principle private residences. There was some discretion given by the Revenue a while back on people living in two properties because of the requirements of their job but this was under the onerous Bacon proposals, since scrapped, which were designed to control the house price bubble.

As you can only have one principle private residence and, in your case, that is the family home in Dublin, any rental income coming from your property in the midlands would seem to come under the standard rental income rules.

As such, I see no reason why mortgage interest cannot be allowed against rental income in this case. The same would apply for costs incurred in renting the rooms and maintenance of the property.

As you say, you would certainly need to allow for the fact that the costs, including the mortgage interest, cover both your own living quarters and the rented space. This means a pro-rata calculation.

As with any slightly out of the ordinary transaction, I would suggest you talk to an accountant about exactly how to break down the tax treatment of your rental income before submitting your return to the Revenue. It could well save you money in the longer term.

Investment

My father is a 75-year-old retired company director. His pension combined with that of my mother's brings in a yearly income of €55,000 before tax.

In order to fund various needs (for example, my mother may need full-time nursing care in the near future), he took up an equity release product on the family home that yielded €125,000.

He now wants to invest half of this in an uncomplicated savings scheme that gives a good interest rate but can be withdrawn without too much notice.

He had thought of taking out an annuity product but has abandoned this idea as it was too complicated. He's now considering the post office.

What should he do?

Ms N.McE., email

Every time the issue of specific investment advice comes up, I have to repeat that this is not my forte. The Central Bank and IFSRA properly regulate the provision of investment advice to ensure that the people giving that advice are aware of the full range of products on offer or make known otherwise to the customer.

The other issue that keeps coming up is the idea of maximising returns without risk. The answer to this, of course, is that people who are not in a position to take risks must accept that they will struggle to make returns that are much ahead of inflation.

Broadly speaking, the higher the risk, the higher the potential reward because, on the other side, the investor stands to lose.

The final point about investment is that people looking for access to their funds at short notice severely limit their options.

Realistically, you are looking at post office savings and bank deposits of one form or another. An Post offers savings certificates and savings bonds. Both are tax-free investments. The drawback is that, if you take your money out early, you will not make the advertised rate of return.

The current issue of certificates promises a 16 per cent return after five years and six months. If you can leave your money in for the full term, that equates to an average annual rate of 2.74 per cent.

An Post savings bonds are a three-year product, currently offering 8 per cent over that term, or an average annual return of 2.6 per cent.

In the area of risk-free, uncomplicated investment, these are really the only products producing gains ahead of the current inflation rate of 2.3 per cent - but only if you leave the money there for the full term.

Among deposit accounts, the best options are not with the main high-street players. At the moment, for the sort of money your parents are interested in investing, the best return available seems to come from Irish Nationwide Building Society, which is offering 2.5 per cent on its fixed-term account. However, this applies only to savings left on account for a year.

Irish Nationwide's freedom account appears to offer the best value on demand deposits, with a return of 2.5 per cent - but this rate is only available on deposits in excess of €75,000.

For those with slightly less to invest - your father is looking at €60,000-€65,000 - the Anglo Irish Bank 21-day notice deposit offers a market-leading 2.35 per cent, matched only by the Northern Rock online monthly demand product.

Of course, the drawback with deposit accounts is that they are liable for DIRT, which will further reduce the effective return.

Motor insurance

My wife has just received her car insurance renewal notice and I would like to shop around. I know that there is a website to do so. Would you know the website address?

Mr J.F., email

There are a growing number of brokers with an online presence and some do claim to offer a shop around service. However, all seem to come with a health warning. You would need to know whether they are dealing with all providers or only a limited number. Some, indeed, can be linked to a single provider.

As far as I can tell, these websites do not give you an immediate range of quotes available - as you would find, let's say, with flight options from an airline website. In general, they offer to post or email you the best quote.

This is cumbersome and time consuming if you want to change certain elements of cover - such as bonus protection - to see what the difference would be to the quote.

The other issue is that, as with all brokers, you will be paying a commission. Going online will not avoid that.

Finally, as with everything on the Web, sites change all the time. Keeping a site like the one you seek takes a fair bit of work for the provider and you need to know that they are up to date.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, D'Olier Street, Dublin 2 or e-mail to dcoyle@irish-times.ie. This column is a reader service and is not intended to replace professional advice. Due to the volume of mail, there may be a delay in answering queries. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.