How to maximise your income
Seeking out alternative sources of income in addition to cash held in a bank or building society account clearly makes sense in a low interest environment. If you are interested in generating an income through an investment fund, there are several factors to consider:
- Where do you hold the fund or investment trust to maximise the tax advantages?
- Are you prepared to take slightly more risk with your money if there is potential of higher returns?
- How much income do you need?
- Are you happy to risk erosion to your capital?
- How long might you need the income for?
Where do you hold the fund or investment trust to maximise the tax advantages?
Choosing the product in which you hold your income investments can provide convenience and, in the case of Individual Savings Accounts (ISAs) and Self Invested Personal Pensions (SIPPs), can provide some useful tax benefits.
Unlike bank and building society accounts, the value of investments and the level of any income derived from them is not guaranteed and can go down as well as up.
ISA
The J.P. Morgan ISA helps you make the most of the tax advantages for income. Our wide choice of investments means you can also access the full growth potential of global stock and bond markets.
- You can invest up to £10,680 in the current 2011/12 tax year, so you can shelter even more of your savings from the taxman and the income from it.
- Interest from Cash ISAs and income from bonds (corporate bonds and gilts) held within a Stocks and Shares ISA is entirely free of income tax, both within the fund and on withdrawal from it.
- Dividends earned in Stocks and Shares ISAs are treated less generously: 10% tax is deducted on all share dividends at source, and this tax ‘credit’ can’t be reclaimed even if the shares are in an ISA fund. There is therefore no direct tax benefit for starting and basic rate taxpayers.
- However, higher rate taxpayers would otherwise pay an additional 22.5% tax on dividends through their tax returns, so they save that balance by investing in equity funds through an ISA wrapper.
SIPP
Our Self Invested Personal Pension (SIPP) aims to help you make the most of the tax advantages available for your retirement planning. The level of tax benefits and liabilities will depend on individual circumstances and may change in the future. Managing your SIPP using J.P. Morgan WealthManager+ gives you access to a wide range of investment options, giving you choice, control and flexibility.
- Your SIPP investments will grow free of capital gains and income tax.
- Part of your pension (up to 25%) can normally be taken as a tax-free lump sum, also known as a Pension Commencement Lump Sum (PCLS). You can take a tax-free lump sum any time from age 55, whether you then take an income from the remainder of your pension fund or not. Whether you have taken a tax-free lump sum or not, you can draw a taxable income from your pension fund at any point from age 55.
- From age 55 you can take your benefits in stages (both income and tax-free lump sum). This is known as phased retirement. You choose how much of your current fund you use to provide benefits at each stage. Income can be taken in the form of Drawdown Pension, Annuity (Secured Pension), combination of Drawdown Pension and Annuity. Find out more about the income options available through a SIPP.
Best of all, you can choose how much of your current fund you use to provide benefits or income at each stage – giving you maximum control and freedom.
Choose the fund or investment trust most relevant to you
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Consider the level of risk you are prepared to take and what your income needs are.
Use our financial planning tools to help. - In the case of funds (OEICs, SICAVs), it is important to select the income shares option when applying rather than the accumulation shares option as accumulation shares do not pay out any income. If you are an existing customer and want to take an income from funds you already hold, please contact us on 0800 20 40 20.
Suitability
You should, of course, only consider investments that are right for you. If you are in any doubt about the suitability of an investment, please speak to an independent financial adviser - find an IFA at unbiased.co.uk.
How often do you want an income, and how much?
- In most funds, you can decide how often your income is paid.
- This can be immediately as soon as an income is paid by the fund, or quarterly, six-monthly or annually.
- You can even decide a minimum specific amount and the income is paid when this minimum is reached.
Essential information
Before investing you should take the time to read all the relevant legal information and make yourself aware of the investment risks involved.
Find out more