Investment income projection

EdInvestor

Hi timesphere

Perhaps you could tell us what income you're receiving from your investments now, and we'll see if it can be increased.

Quite agree with you on the tax matter

timesphere

No problem,

got no company pension but I have maxed out my cash ISAs, got some cash in an internet savings account (5%) and the rest is in shares, average 4% on value of
shares now but about 9% on what I bought them for (plus capital growth)

Any advance on 9% ? ? ?

dunstonh

I would rather pay 50% tax on 10k than 0% tax on 1k

With respect to investment funds, with the same funds available on all the various tax wrappers, often the only difference is charges and tax. Thats why it needs to be taken seriously.

timesphere

I am sorry for not taking tax wrappers seriously,
I honestly thought that getting 50% of 10k was
better than getting 100% of 1k, so is my 9% return
and capital growth really pathetic compered to an
investment fund inside a tax wrapper ?

deemy2004

Its really bad the way the investment literature (such as the Norwich Union Bond) tries to confuse potential investors into thinking their withdrawls are income generated from the bond rather than the actual capital or any gains made on the bond.

5% of the original amount ... ? :rolleyes:

Dividend income tends to grow year on year, yes in the initial years it is likely to be sub 5% of the INITIAL amount, but in subsquent years the increases in dividends will eventually take it far beyond 5% !

And off course in the long-term on top of the dividend income there is healthy capital gain !

There is no comparison between a bond of this type and a stock portfolio where some 33% to 50% of the potential / income generated is eaten away by commission !

There really is NO comparison AT ALL !

Its bad that the literature deliberatly tries to set out to confuse people and is not helped by scare stories by IFA's that if the person tries to go down their own portfolio route, they will be hit by 33% taxes etc.. !

EdInvestor

timesphere

timesphere wrote:

Any advance on 9% ? ? ?

Not these days.You could eaily better that 5 years ago with BTL, but yields there are down to around 5-6% gross, which is nothing like as good as shares after you factor in costs, lack of liquidity and the hassle.

The best yield around at present that I'd seen is commercial property offshore trusts, some of which ( eg the Scottish Widows one, EPIC:UBR) pay income in the 6-7% range.However I suspect the trusts are now attracting a premium, there's so much money trying to buy into commercial property for this very reason.:(

You can still get just over 5% on a diversified portfolio of blue chip high yield stocks.

MJSW

oceanblue wrote:

I did not say it was an equivalent rate on dividend income. For the sake of clarity, please show me where I have referred to an equivalent rate of 33% on dividend income.

Well as the whole discussion has generated into a debate about the tax liability generated by receiving the dividend income, I assumed your constant references to equivalent rates of 33% were in reference to what was being discussed, namely the effect of the dividends on the tax liability! As every post our discussion referes to dividends, I thought this was quite clear. If the 33% rate you were discussing didn't refer to dividend income at all, but was referring to other sources if income which would be competely unaffected by the decision to invest in equities (such as the pension), then it is irrelevant.

Forgetting Age Allowance for a minute, if someone under 65 asked you the question "how much tax would I pay on dividends in the basic rate band?", would you answer them with "the equivilent rate of tax on income for a basic rate taxpayer is 22%"? One would hope not, as that isn't answering the question asked. Similarly anyone wanting to know the effect on their tax liability if they receive dividends of £4390 isn't likely to want to know that if they had received pension instead of dividends they would have paid 33%, as they asked about dividends. (And even if they do receive further pension income on top of the additional dividends, the additional tax liability caused by the dividends is still at most 11%). We are discussing the tax effect of the dividends to a basic ratepayer losing Age Allowance.

Hopefully, we can now clear all this up if you just answer one simple question. What is the equivalent rate of tax on the dividend income in your opinion? Please try and answer it!

cheerfulcat

dunstonh wrote:

With respect to investment funds, with the same funds available on all the various tax wrappers, often the only difference is charges and tax. Thats why it needs to be taken seriously.

The charges on funds within investment bonds are much higher than outside of the wrapper. Tax is only deferred, not avoided.

Frankly, investment bonds would appear to be a rip-off.

whiteflag_3

The charges on funds within investment bonds are much higher than outside of the wrapper. Tax is only deferred, not avoided.

Cheerfulcat

Please can you provide evidence to back up your last statement

Thanks

dunstonh

The charges on funds within investment bonds are much higher than outside of the wrapper. Tax is only deferred, not avoided.

Frankly, investment bonds would appear to be a rip-off.

Seeing as it is very easy to see reductions in yield much lower than unit trusts or OEIC funds (using the same funds), your statement is incorrect.

Also, you seem to misunderstand the tax workings of the bond as it can easily be used to avoid tax and not defer it. A higher rate taxpayer who will be a basic rate tax payer at a later date can use it to avoid higher rate tax. Bonds are also used in IHT planning in conjunction with trusts.

I am sorry for not taking tax wrappers seriously,
I honestly thought that getting 50% of 10k was
better than getting 100% of 1k, so is my 9% return
and capital growth really pathetic compered to an
investment fund inside a tax wrapper ?

I'm sorry but I dont understand this. If investment funds is the area being invested in and you have a choice to pick the same funds across 4 or 5 different tax wrappers, then surely it is important to pick the right one? The difference can alter the return signficantly if you pick the wrong one. We are talking about 55% of 10k rather than perhaps 45% of 10k if you pick the wrong one. Your 100% of 1k is, to be honest, silly talk.

I also think that growth of 8.47% since 29th June could not be considered pathetic. And thats in a portfolio weighted towards the cautious side. Many would be happy getting that in a year, let alone 2 months. Indeed, its not far off your 9% p.a. figure in a fraction of the time.