Profitable returns
Investing money through a with-profit bond can provide you with the facility to take tax-efficient regular withdrawals to provide 'income'. These bonds allow you to draw up to 5 per cent a year of the original amount invested for 20 years without having to make a declaration for tax purposes. This can be particularly useful for higher-rate taxpayers and those who receive the increased age allowance, as the return on capital up to this level is deemed to be tax-free in the year it is drawn and therefore is not included as taxable income.

Tax-efficiency
Distribution bonds aim to pay a level of income through the yields that the underlying equities generate. Up to 5 per cent of the original capital a year, can be withdrawn tax-efficiently, leaving any excess income and growth to accumulate. The 5 per cent income yield target is arrived at to avoid an overall drop in value of the fund.

Immediate annuities
Some investors in the latter years of their retirement may choose to purchase an immediate annuity which will give them a guaranteed income for life, or for a chosen term, and this payment can either be level or can escalate. Part of the annuity income will be tax free, the amount depending on the age of the client.

The disadvantage of this tax-advantaged secure income investment is that it is not usually possible to redeem the capital. This investment is therefore normally suited only to those who are over the age of 74, because the older one is, the higher the annuity income will be, and the loss of capital to the immediate family will not be as problematic.

With larger estates, writing off capital in this way means that less inheritance tax (currently 40% on an estate of over £250,000) will befall the estate beneficiaries. So the real cost of the annuity can be deemed to be 60% of the capital expended.

If you would like to discuss how to generate additional income, whether you are retired or are approaching retirement, please e-mail or contact us for further information.