Using income funds as part of growth strategy for pension portfolio

bowlhead99

TCA wrote: »

Goes against the grain but it's tempting to buy HDIV and the other bond 3 trusts unwrapped and use the ISA allowance for other intended dividend paying purchases and to wrap other existing holdings going forward. It's all down to earned income. Time to get the calculator out.

In the long term it can be not just about the income but the capital growth.

By that I mean, if you're the sort of person who has the ability to max an ISA limit each year which perhaps you are:

£50k of ISA investment using equity-based underlying holdings, ~7% annualised growth, come back in a decade it's grown to £98k.

£50k of ISA investment using bond-based holdings with inherently lower capital return, ~4% annualised growth, come back in a decade it's grown to only £74k.

Having a wrapper that can hold £98k of investments is much more useful than a wrapper that can only fit £74k of investments, regardless of what type of investments you ultimately put in there...

So if the ISA was saving you a similar slice of annual tax no matter whether div or interest, it would be tempting to use the wrapper to hold the assets with greatest potential to grow the size of the wrapper over fine.

As it is, if you can receive bond interest at or near zero percent tax due to your allowances maybe best to use the wrapper for something else. But if your income is pretty low, your max basic rate div tax is only a paltry 7.5% while tax on interest could be costing you 20% basic rate (if for example we get a general increase in interest rates and the 0% starting rate band doesn't grow accordingly)

Calculators can be handy as can spreadsheets for this sort of stuff; so can crystal balls!

bigadaj

Crystal balls, this surely has to be bowlheads nom de post going forward, a la beckhams golden balls moniker.