Citywire printed articles sponsored by:
View the article online at http://citywire.co.uk/money/article/a609476
How to generate an income from your savings
With the right mix of assets you can make 7% a year over the long term, says Mike Deverell of Equilibrium Asset Management.
Say you receive a total return of 8% in a year and require 5% a year to fund your income. Does it make any difference whether you take this from income or capital?
In fact, for non-pension portfolios there is a real tax benefit to taking regular capital withdrawals. You can make capital gains of up to £10,600 in a year without paying capital gains tax.
Say you had a portfolio of £300,000 and made a return of 10%. The gain is £30,000 on the total portfolio; however, you only pay tax on gains you crystallise. For example, if you encashed £110,000, you have only crystallised a capital gain of £10,000.
It is therefore possible to take a very high level of regular capital withdrawals without having to pay tax.
A sensible mix of the above asset classes should be able to generate a total return of over 7% a year on average over the long term.
This level of return should be enough to produce a decent income from a mix of yield and capital, and protect against inflation.
The opinions expressed in this article are those of the author and do not constitute advice.
More about this:
Look up the funds
- Invesco Perpetual Income Inc
- Artemis Income I Inc
- M&G Global Dividend A GBP Inc
- Jupiter Strategic Bond Acc
Look up the investment trusts
More from us
- UK share dividends hit record high
- Peer-to-peer lending: a replacement for banks?
- Equilibrium Asset Management
Tools from Citywire Money
From the Forums
Weekly email from The Lolly
Get simple, easy ways to make more from your money. Just enter your email address below
An error occured while subscribing your email. Please try again later.
Thank you for registering for your weekly newsletter from The Lolly.
Keep an eye out for us in your inbox, and please add email@example.com to your safe senders list so we don't get junked.