Investment Income

dylon_2

Help
i have just taken early retirement, i am looking to invest my lump sum approx £100,000.
Are there any tax efficient investments i can use to invest the lump sum to achieve a monthly income, i expect to stay at standard rate taxation on my pension and any further income i recieve.

many thanks

dunstonh

ISAs, Unit Trusts, OEICs, ITs, Investment Bonds (onshore or offshore).

It really depends on your circumstances, how and where you want to invest and the impact of the investment onto your tax situation (if over 65 then you have an interim taxation level around 20k to be concerned about potentially). You also have capital gains tax concerns potentially which some, but not all investments could lead to a liability. Lastly, it also depends on what distribution channels you intend to buy the product through. For example, buy a tax efficient investment through an expensive source and you wipe out any savings that makes in tax.

dylon_2

Many thanks dunstonh
i am 57 years i have other money invested in these iSAs, Unit Trusts, OEICs, ITs, Investment Bonds (onshore.
but nothing offshore.
i was looking for something paying monthly interest but not tying the capital up,
where do i look for the tax efficient investment through an INexpensive source.

Dylon

EdInvestor

A portfolio of shares paying dividends is always worth considering for a basic rate taxpayer: the divis are tax-free and the annual CGT allowance of 9k can be easily utilised now and then to reduce any tax there in the long term

The High Yield Portfolio idea is well worth considering for anyone looking for a retirement income investment like this.

dunstonh

A HYP may incur a tax liability if it goes past the age allowance limit. Plus you cannot say the dividends are tax free. They are not.

EdInvestor

Plus you cannot say the dividends are tax free. They are not.

No tax is payable on dividend income by basic rate taxpayers.HRTs have to pay 25%.

jem16

EdInvestor wrote:

No tax is payable on dividend income by basic rate taxpayers.HRTs have to pay 25%.

Surely it would be more correct to say no extra tax is payable by basic rate taxpayers as dividends are taxed at 10% at source?

cheerfulcat

jem16 wrote:

Surely it would be more correct to say no extra tax is payable by basic rate taxpayers as dividends are taxed at 10% at source?

And important to add that dividends from overseas may well be taxed at even more...

dunstonh

and if over the age allowance limit, can result in the reduction/removal of the age allowance creating a tax increase of up to £493 a year.

The correct terminology is tax paid. Otherwise we end up calling any investment with no personal tax liability tax free and that is clearly incorrect.

EdInvestor

jem16 wrote:

Surely it would be more correct to say no extra tax is payable by basic rate taxpayers as dividends are taxed at 10% at source?

The dividends are not taxed 10% at source because there is a dividend tax credit which offsets this for basic rate taxpayers.This tax credit partially offsets it for higher rate taxpayers,who will know about all this as it comes into their tax return.

The explanation is included in the HYP FAQs but here it is again for those who haven't already seen it.:rolleyes:

[You must have seen it at least 3 times DH, unless you've been deliberately ignoring it].

EdInvestor

cheerfulcat wrote:

And important to add that dividends from overseas may well be taxed at even more...

This is quite so and as a result the HYP concept does not extend to overseas shares, because overseas companies' dividends are often subject to withholding and other taxes in foreign countries.

In any case, major international exposure can be obtained through a number of UK-listed large cap blue chips which are suitable for HYP style investing.