I am a 70-year-old woman living off a state pension of about £2,000 a year and the 5 per cent interest on £150,000 of savings. With the increase in personal allowance to £9,030 in 2008/9 and with interest rates set to fall further, can I receive the interest untaxed?

Or will my £9,500 total income mean I am breaking the rules for receiving interest untaxed and, if so, what sanction might I face?

Also, I think I may be owed tax on interest for 2007/8 and previous years. How do I go about reclaiming this tax?

Lenka Hennessey, tax director at Grant Thornton, says your current level of income of £9,500 will largely be covered by the increased age-related personal allowance of £9,030 for a 70-year-old in the new 2008/9 tax year.

The remainder of your savings income will be taxable at 10 per cent (up to the starting rate band of £2,320). UK banks and building societies normally deduct basic rate tax of 20 per cent at source on savings interest.

If you expect your taxable income to be less than your personal allowance, you can apply to receive interest gross. You will need to complete an R85 form, which the bank will be able to provide (and which can also be found at www.hmrc.gov.uk/forms/r85.pdf).

Self-certification to receive interest gross should not be entered into lightly as there is a penalty (of up to £3,000) for giving a certificate fraudulently or negligently, or failing to comply with any undertaking contained in the certificate – including confirmation that income is below the tax-free allowance limit.

HM Revenue & Customs (HMRC) has confirmed that it would not impose a penalty where the certificate was given “in good faith” – for example, where your income starts off lower than the personal allowance but then turns out to be higher.

Unfortunately, even though your tax bill is likely to be only a few pounds and your top rate only 10 per cent, you cannot claim to receive interest gross because you cannot confirm that your income will be within your personal allowance. However, you will be able to reclaim this overpaid tax after the 2008/9 tax year is over.

If you do apply to receive income gross that turns out to be taxable, you will also still need to pay any tax by the due date of January 31 following the end of the tax year to which it relates (January 31, 2010 for interest received in 2008/9).

And rather than relying on interest rates falling in order to reduce your taxable savings interest, it may be worth considering the alternatives, such as tax-free savings accounts and/or investments.

To make a claim for overpaid tax for past years, you will need to complete a form R40 for each relevant tax year. This can be obtained from HMRC’s order line on 0845 9000 404 or its website (www.hmrc.gov.uk /forms/r40.pdf). The time limit for making a claim is five years from January 31 following the end of the tax year. For example, a claim for 2002/03 must be made by January 31 2009.

However, there are proposals to reduce this time limit to four years from January 31 following the end of the tax year. The completed form should be sent to your tax office.

There are notes on www.hmrc.gov.uk for further guidance.

My nest-egg has not hatched

Just after September 11 2001, I invested €346,000 with a portfolio management firm. With full discretion to make decisions on my behalf, it chose a range of funds in an offshore bond. Over the past 6½ years, withdrawals (not including their fees) have amounted to €93,000 and the portfolio is now valued at €260,000. Therefore, accounting for the withdrawals, the remaining funds have grown by about €7,000 – 2 per cent – in total while the firm has taken more than €27,000 in fees. I was classified as a low-to-medium-risk investor at the time of the original investment and this has not changed. As I was living in France – although I’m now returning to the UK – the portfolio was denominated in euros but over half was subsequently invested in non-euro funds split between a global bond fund and equity funds.

I understand that investment returns are not guaranteed, but stock markets have made much better gains over the period I was invested and performance has been vastly below my expectations. The firm has also only made one change to the initial fund choices, to switch the bond fund from sterling to euro-denominated.

In spite of the recent weakening of other currencies against the euro, it appears not to have managed the portfolio or made efforts to improve returns. I find it hard to believe that just one fund switch in more than six years can be considered to be “management” that is worth paying for. Do I have a case for negligence, should I be entitled to compensation, and how can I go about getting redress?

Phillip Wood, wealth advisory director at accountants PwC, says that while the return which you have achieved since September 2001 may seem low, a claim based simply on poor investment performance is unlikely to be upheld.

However, if you feel that you have not received the service which you could reasonably expect, or that your money has not been invested in line with your objectives, you should, as a starting point, write a letter of complaint to the portfolio management firm.

You have indicated that you have incurred total charges since investment of €27,000. Over 6½ years, this totals 7.8 per cent of your original investment.

While this may not equate to a competitive fee basis, by itself it does not seem to account for the low net return. It would not be un­usual to see annual management fees in the order of 1 to 1.5 per cent a year.

You do not mention what specific investments are held within the offshore bond and, of course, the poor performance may be largely due to poor investment decisions or poor timing.

However, there may have been charges in addition to the €27,000 including, for example, early surrender penalties that have reduced the value.

These should have been made clear at the outset and such a charging structure will not have been appropriate if the intention was always to make some withdrawals.

In addition, the stated fees may not include costs for the provision of the bond “wrapper” or the underlying investments. Overall, un­expected or excessive charges are likely to provide you with grounds for a ­complaint. You may also argue that the portfolio has not been run in line with any low-to-medium-risk mandate agreed with the managers at the outset.

This will be easier to prove if the mandate, including the risk profile, was clearly defined at the outset and it can be clearly shown how the managers deviated from this.

Or you may be able to argue that the management of your portfolio was not within the usual parameters of the portfolio management firm. Certainly, that only one change in 6½ years has been made could suggest that the firm has not been very active in its management.

If at any stage you feel that you have been provided with incorrect or misleading information, that is also likely to strengthen your grounds for complaint.

You do not say whether these services were provided to you initially while you were in the UK or abroad. Nevertheless, if the company does not deal with your complaint satisfactorily it should confirm who it is regulated by and inform you of the next steps in the redress process.

If the services were initially provided to you in the UK and the firm is subject to the UK’s Financial Services Authority, the company will have to acknowledge the complaint and deal with it within specific timescales which it should also inform you of.

If you are not satisfied with the firm’s response, you can generally take your complaint to the relevant independent complaints scheme.

Usually this will be the Financial Ombudsman Service but the firm should tell you to which scheme it belongs.