Where to go if you want high income

NEEDS for income change throughout our lives. Early on in retirement, most investors need a reasonable and growing income. Later on, they might want to maximise income, regardless of the risk to their capital, writes Clare Arthur.

A wide variety of investment trusts meet most investors' needs, from a very high income to regular returns which are virtually guaranteed.

The structure of investment trusts can help their potential for producing a sustained and high level of income. They often have low management charges. Some trade at a discount, meaning you can buy an income stream at less than its normal price. Perhaps most importantly for investors who rely on a steady income, investment trusts can put some income into reserve in good years, enabling them to sustain dividends through more difficult periods.

Investment trusts normally pay dividends twice a year with a tax credit equal to the lower rate of income tax. Basic-rate taxpayers need pay no more, but higher-rate taxpayers must stump up another 20 per cent, while non-taxpayers can reclaim the 20 per cent tax already deducted. Many income-oriented trustsqualify for inclusion in a PEP up to the full pounds 6,000 limit.

Investors must understand what they are buying. Graham Hooper, a director of Bath-based independent financial adviser Chase de Vere, said: "People think they know all about investment trusts, but they are very complicated things. It's all too easy to invest in the wrong share for your purposes."

Investors who have just retired may have to live on their investments for 20 or 30 years. It is therefore important for them to protect and grow the capital which is producing their income.

Many income-oriented investment trusts concentrate on companies paying moderate dividends, but which offer good potential for growth in both share price and dividends. This type of trust, often called UK income growth, is popular, and shares often trade at a price higher than the net asset value of the fund's underlying investments.

Chris Macdonald, managing director of London independent financial adviser Brooks Macdonald Gayer, recommends two income growth trusts - Dunedin Income Growth and Temple Bar. He said: "Dunedin has suffered management problems recently, but this is reflected in the price of the shares, which are standing at a 9 per cent discount to the fund's net asset value." The trust is yielding 4.7 per cent, and dividends are paid in October and April.

Temple Bar Investment Trust, which is managed by Guinness Flight, stands at a discount of 6 per cent, and yields 4.8 per cent. Its dividends are paid in September and March.

Investors who need a high income straight away may do better by investing in high income trusts. These pay a high income now by investing in high- yielding equities, fixed-interest securities and convertible shares. But high-income trusts offer little opportunity for growth in income and capital over the longer term.You could find your income and capital falling in value against the cost of living if inflation takes off.

The structure of split-capital investment trusts enables them to offer substantially higher income than conventional trusts.

Splits offer several types of share within the one fund. Capital shares aim to provide the investor with an unknown quantity of capital growth but no dividends. Zero dividend preference shares yield no dividends, but pay out a predetermined capital sum when the investment trust is wound up. Holders of income shares are entitled to all the income produced by the trust, but the amount of money they receive on redemption varies according to the share's terms.

The traditional income share has a predetermined redemption value, typically pounds 1. Others have a fixed redemption price but are also entitled to a proportion of any remaining capital left over. Annuity income shares offer a very high level of income but repay next to nothing when the trust is wound up.

Start your day with The Independent, sign up for daily news emails
News
Sir David Attenborough
people
Life and Style
Young girl and bowl of cereal
food + drink
News
Comic miserablist Larry David in 'Curb Your Enthusiasm'
peopleDirector of new documentary Misery Loves Comedy reveals how he got them to open up
Arts and Entertainment
Henry VIII played by Damien Lewis
tvReview: Scheming queens-in-waiting, tangled lines of succession and men of lowly birth rising to power – sound familiar?
PROMOTED VIDEO
Sport
football
Arts and Entertainment
'The Archers' has an audience of about five million
radioA growing number of listeners are voicing their discontent; so loudly that even the BBC's director-general seems worried
News
i100
Arts and Entertainment
Ready to open the Baftas, rockers Kasabian are also ‘great film fans’
musicExclusive: Rockers promise an explosive opening to the evening
Life and Style
David Bowie by Duffy
fashion
Arts and Entertainment
Hell, yeah: members of the 369th Infantry arrive back in New York
booksWorld War Z author Max Brooks honours WW1's Harlem Hellfighters in new graphic novel
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
News
advertisingVideo: The company that brought you the 'Bud' 'Weis' 'Er' frogs and 'Wasssssup' ads, has something up its sleeve for Sunday's big match
Arts and Entertainment
tv
News
i100
Environment
Dame Vivienne Westwood speaking at a fracking protest outside Parliament on Monday (AP)
environment
Life and Style
tech
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Recruitment Genius: Technical Report Writer

£25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...

MBDA UK Ltd: Indirect Procurement Category Manager

Competitive salary & benefits!: MBDA UK Ltd: MBDA UK LTD Indirect Procurement...

Recruitment Genius: Web Developer - PHP

£16500 - £16640 per annum: Recruitment Genius: This fast growing Finance compa...

Day In a Page

Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee
World War Z author Max Brooks honours WW1's Harlem Hellfighters in new graphic novel

Max Brooks honours Harlem Hellfighters

The author talks about race, legacy and his Will Smith film option to Tim Walker
Why the league system no longer measures up

League system no longer measures up

Jon Coles, former head of standards at the Department of Education, used to be in charge of school performance rankings. He explains how he would reform the system
Valentine's Day cards: 5 best online card shops

Don't leave it to the petrol station: The best online card shops for Valentine's Day

Can't find a card you like on the high street? Try one of these sites for individual, personalised options, whatever your taste
Diego Costa: Devil in blue who upsets defences is a reminder of what Liverpool have lost

Devil in blue Costa is a reminder of what Liverpool have lost

The Reds are desperately missing Luis Suarez, says Ian Herbert
Ashley Giles: 'I'll watch England – but not as a fan'

Ashley Giles: 'I'll watch England – but not as a fan'

Former one-day coach says he will ‘observe’ their World Cup games – but ‘won’t be jumping up and down’
Greece elections: In times like these, the EU has far more dangerous adversaries than Syriza

Greece elections

In times like these, the EU has far more dangerous adversaries than Syriza, says Patrick Cockburn
Holocaust Memorial Day: Nazi victims remembered as spectre of prejudice reappears

Holocaust Memorial Day

Nazi victims remembered as spectre of prejudice reappears over Europe
Fortitude and the Arctic attraction: Our fascination with the last great wilderness

Magnetic north

The Arctic has always exerted a pull, from Greek myth to new thriller Fortitude. Gerard Gilbert considers what's behind our fascination with the last great wilderness