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.

News
Susan Sarandon described David Bowie as
peopleSusan Sarandon reveals more on her David Bowie romance
Sport
Arsenal supporters gather for a recent ‘fan party’ in New Jersey
football
News
i100
Sport
sportDidier Drogba returns to Chelsea on one-year deal
PROMOTED VIDEO
Arts and Entertainment
The Secret Cinema performance of Back to the Future has been cancelled again
film
Life and Style
Balmain's autumn/winter 2014 campaign, shot by Mario Sorrenti and featuring Binx Walton, Cara Delevingne, Jourdan Dunn, Ysaunny Brito, Issa Lish and Kayla Scott
fashionHow Olivier Rousteing is revitalising the house of Balmain
News
i100
Arts and Entertainment
Christian Grey cradles Ana in the Fifty Shades of Grey film
filmFifty Shades of Grey trailer provokes moral outrage in US
News
people
News
BBC broadcaster and presenter Evan Davis, who will be taking over from Jeremy Paxman on Newsnight
peopleForget Paxman - what will Evan Davis be like on Newsnight?
Life and Style
fashionCustomer complained about the visibly protruding ribs
News
ebookA unique anthology of reporting and analysis of a crucial period of history
News
newsComedy club forced to apologise as maggots eating a dead pigeon fall out of air-conditioning
Arts and Entertainment
Jo Brand says she's mellowed a lot
tvJo Brand says shows encourage people to laugh at the vulnerable
Life and Style
People may feel that they're procrastinating by watching TV in the evening
life
News
Tovey says of homeless charity the Pillion Trust : 'If it weren't for them and the park attendant I wouldn't be here today.'
people
Sport
Rhys Williams
commonwealth games
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

Senior Risk Manager - Banking - London - £650

£600 - £650 per day: Orgtel: Conduct Risk Liaison Manager - Banking - London -...

The benefits of being in Recruitment at SThree...

£18000 - £23000 per annum + Comission: SThree: SThree, International Recruitme...

Test Analyst - UAT - Credit Risk

£280 - £300 per day + competitive: Orgtel: Test Analyst, Edinburgh, Credit Ris...

Trainee Recruitment Consultants - Banking & Finance

£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

Day In a Page

Evan Davis: The BBC’s wolf in sheep’s clothing to take over at Newsnight

The BBC’s wolf in sheep’s clothing

What will Evan Davis be like on Newsnight?
Finding the names for America’s shame: What happens to the immigrants crossing the US-Mexico border without documents who never make it past the Arizona desert?

Finding the names for America’s shame

The immigrants crossing the US-Mexico border without documents who never make it past the Arizona desert
Inside a church for Born Again Christians: Speaking to God in a Manchester multiplex

Inside a church for Born Again Christians

As Britain's Anglican church struggles to establish its modern identity, one branch of Christianity is booming
Rihanna, Kim Kardashian and me: How Olivier Rousteing is revitalising the house of Balmain

Olivier Rousteing is revitalising the house of Balmain

Parisian couturier Pierre Balmain made his name dressing the mid-century jet set. Today, Olivier Rousteing – heir to the house Pierre built – is celebrating their 21st-century equivalents. The result? Nothing short of Balmania
Cancer, cardiac arrest, HIV and homelessness - and he's only 39

Incredible survival story of David Tovey

Tovey went from cooking for the Queen to rifling through bins for his supper. His is a startling story of endurance against the odds – and of a social safety net failing at every turn
Backhanders, bribery and abuses of power have soared in China as economy surges

Bribery and abuses of power soar in China

The bribery is fuelled by the surge in China's economy but the rules of corruption are subtle and unspoken, finds Evan Osnos, as he learns the dark arts from a master
Commonwealth Games 2014: Highland terriers stole the show at the opening ceremony

Highland terriers steal the show at opening ceremony

Gillian Orr explores why a dog loved by film stars and presidents is finally having its day
German art world rocked as artists use renowned fat sculpture to distil schnapps

Brewing the fat from artwork angers widow of sculptor

Part of Joseph Beuys' 1982 sculpture 'Fettecke' used to distil schnapps
BBC's The Secret History of Our Streets reveals a fascinating window into Britain's past

BBC takes viewers back down memory lane

The Secret History of Our Streets, which returns with three films looking at Scottish streets, is the inverse of Benefits Street - delivering warmth instead of cynicism
Joe, film review: Nicolas Cage delivers an astonishing performance in low budget drama

Nicolas Cage shines in low-budget drama Joe

Cage plays an ex-con in David Gordon Green's independent drama, which has been adapted from a novel by Larry Brown
How to make your own gourmet ice lollies, granitas, slushy cocktails and frozen yoghurt

Make your own ice lollies and frozen yoghurt

Think outside the cool box for this summer's tempting frozen treats
Ford Fiesta is UK's most popular car of all-time, with sales topping 4.1 million since 1976

Fiesta is UK's most popular car of all-time

Sales have topped 4.1 million since 1976. To celebrate this milestone, four Independent writers recall their Fiestas with pride
10 best reed diffusers

Heaven scent: 10 best reed diffusers

Keep your rooms smelling summery and fresh with one of these subtle but distinctive home fragrances that’ll last you months
Commonwealth Games 2014: Female boxers set to compete for first time

Female boxers set to compete at Commonwealth Games for first time

There’s no favourites and with no headguards anything could happen
Five things we’ve learned so far about Manchester United under Louis van Gaal

Five things we’ve learned so far about United under Van Gaal

It’s impossible to avoid the impression that the Dutch manager is playing to the gallery a little