Independent Financial Advisers and Pension Consultants

ARE YOU LOOKING FOR INCOME ?

It is now over nine years since bank base rates were in double figures. In the last five years, the highest base rate has been 7.5% (Bank of England, 2001) As a result, if you are looking for income, deposit-based investments have been disappointing. To make matters worse, many banks and building societies have been using this year's base rate changes to widen their margins at depositor's expense. The good news is that there are plenty of other income options now available, many of which are not linked to fluctuating short term interest rates. Here are some of the possibilities: Corporate Bond Individual Savings Accounts (ISAs) Interest received from corporate bonds held within an ISA is tax-free. If you are a higher rate taxpayer, this means an ISA can increase your net income by two-thirds. If you are a basic rate taxpayer, the uplift is a quarter. Personal Equity Plans (PEPs) The investment rules for PEPs were brought into line with those for ISAs from April 2001. This has widened your choice of funds, including corporate bond funds. The tax freedom on bond interest will continue for PEPs (and ISAs) until at least April 2009, although the benefit of the tax reclaim on UK dividends ends in April 2004. Personal Pensions The new rules for personal pensions have created an interesting income opportunity if you are aged 50 to 74. Subject to certain exclusions for current controlling directors and high earners, you can arrange a personal pension and immediately draw upon it. You will receive: 22% tax relief on your investment (40% for higher rate taxpayers) a tax-free lump sum of up to 25% of the value of your pension fund and an income for life that is taxable based on the remaining value of your fund. The returns can be very attractive indeed. Ask us for a quote. Income Plans There are basically two main types of income plan: Guaranteed income bonds These provide a fixed income and guaranteed return of capital at the end of the term, typically up to five years. Income levels reflect market interest rates, but net returns are usually higher than you could achieve in your own right because of the special tax treatment given to life assurance companies and their policies. High income plans. These plans generally offer a much higher level of income than guaranteed bonds, but provide no certainty that your capital will be repaid in full at maturity. To maximise tax benefits, some of these plans are packaged as ISAs and many are now based offshore.

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