Where to allocate bond ETF?

gravlax

Although tax should not dictate investment strategy, and things may change in the budget, I would still welcome any views on where to allocate more gov bond etf based on current tax rates assuming basic rate tax.

When income is eventually withdrawn from the portfolio then at present dividend income is the least taxed. But as equities tend to produce most capital gains potential it makes sense to have these tax wrapped in an ISA and/or SIPP so both are fully utilised. But if equities are maxed that would put gov bond etf in a general account where income is treated as interest and tax (after the allowance) is at a higher rate than dividend income would be.

The withdrawal rate will be 3.5% where the portfolio dividend yield is around 2.5% and the bond etfs interest is around 3.5%  So some funds, likely equities most often, will probably need to be sold annually get to the 3.5% income withdrawal. So with a 80/20 or 70/30 equities/gov bonds, where income will eventually be withdrawn as dividends and interest, topped up with some fund units sold, where to put most of the bonds in the above scenario?

ColdIron

gravlax said:

So with a 80/20 or 70/30 equities/gov bonds, where income will eventually be withdrawn as dividends and interest

Dividends and interest (and ERI) is taxable annually as it arises. It is not deferred until withdrawal (or disposal in the case of capital gains)

If you held your 80/20 or 70/30 within a multi-asset fund then all distributions would be classed as dividends

gravlax

ColdIron said:

gravlax said:

So with a 80/20 or 70/30 equities/gov bonds, where income will eventually be withdrawn as dividends and interest

Dividends and interest (and ERI) is taxable annually as it arises. It is not deferred until withdrawal (or disposal in the case of capital gains)

If you held your 80/20 or 70/30 within a multi-asset fund then all distributions would be classed as dividends

Yes, the fact it gets taxed as it arises is why I will withdraw the corresponding amount as part towards the 3.5% withdrawal rate. The gov bonds ETFs, in this case the income is taxed as interest according to their FAQs.