Taking a regular income from your investments

Many people, especially those approaching, or in, retirement want to get a monthly income from their investments, often to supplement their pension.

FUNDS TAILORED TO INCOME NEEDS

One of the most obvious options is to buy a selection of funds that make regular payouts. This would mean buying funds that generate high yields and having the dividends paid into a holding account from which regular monthly amounts can be accessed.

Another option is to build a portfolio of income-paying funds that make their dividend payouts at different points in the year. Building a portfolio in this way makes it possible to spread your money across a range of diversified assets, but the downside of this is that the income may not be the same amount each month.

Alternatively, another strategy that can often make sense is to opt for funds that offer good long-term returns, rather than targeting too high a yield. This way, you can sell units to meet your income needs. It?s important to plan, allowing funds enough time to make a profit, so that you are not forced to sell them at a loss.

DIVIDEND ALLOWANCE SET TO REDUCE IN 2018

For the 2017–18 tax year, investors can earn up to £5,000 in dividend income tax-free, but this figure is set to drop to £2,000 from April 2018. This means that an investor can earn up to £16,500 in dividends in the 2017–18 tax year, combining £11,500 personal allowance and the £5,000 dividend allowance; this, of course assumes they have no other sources of income.

If you decide instead to sell investments to raise cash, then the tax-free Capital Gains Tax (CGT) allowance for 2017–18 is £11,300 (£5,650 for trusts). Above that threshold, basic rate tax-payers selling investments would pay CGT at 10%, with higher rate tax payers paying at 20%. The CGT allowance for individuals increases to £11,700 from April 2018 (£5,850 for trusts).

The value of investments and income from them may go down. You may not get back the original amount invested.

Information is based on our understanding of taxation legislation and regulations. Any levels of, and reliefs from taxation, are subject to change.