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Investing for Income

If you are approaching retirement or already there then most likely you will be looking for a sustainable and tax efficient income, with the prospects for some capital appreciation as well. Whether you want your capital to be placed under trust for your heirs or not, the provision of income will often be a main priority. This can be achieved in a wide variety of ways, but achieving an appropriate element of capital appreciation combined with tax effectiveness and simplicity is often best achieved through the use of an Investment Bond.

Investment Bonds are technically single premium insurance policies which is why they are so well suited for higher rate taxpayers. The particular rules that apply to these investments have existed for many years and are fully accepted by the Revenue, which makes them far less contentious than many more exotic tax mitigation schemes.

The most obvious advantage is that up to 5% can be withdrawn each year with no immediate tax arising, and that income can be taken tax free for up to 20 years. Your capital, meanwhile, remains invested through 'collective' investment funds, thereby creating the opportunity for capital appreciation as well.

The level of the income can be varied if required, and the tax free 'allowance' is cumulative over the first 20 years. For example, if you require no income for say 4 years, then you could take up to 6.25% each year tax free for the following 16 years. If you don't use up your full tax free allowance the balance carries on after the end of the initial 20 years.

Access to your capital may also be important to you, although it will always be advisable to keep an 'emergency reserve; in the bank or building society, simply to avoid the likelihood of needing to make a large withdrawal at a time that may be disadvantageous, whether for tax reasons or due to market conditions. One of the key issues we will cover with you is the appropriate level of your 'emergency reserve', a lot of which is to do with your own peace of mind!

Apart from certain types of trust arrangements, where the tax benefits may depend on you not having access to the underlying capital, in general Investment Bonds permit capital to be withdrawn at any time in part or in whole. There may of course be adverse consequences such as tax or other costs, and advice should always be taken before any major change is made.

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