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.

PROMOTED VIDEO
Arts and Entertainment
glastonbury
News
i100
Arts and Entertainment
Shock of the news: Jake Gyllenhaal in ‘Nightcrawler’
filmReview: Gyllenhaal, in one of his finest performances, is funny, engaging and sinister all at once
Arts and Entertainment
Shelley Duvall stars in Stanley Kubrick's The Shining
filmCritic Kaleem Aftab picks his favourites for Halloween
News
people
Arts and Entertainment
Kit Harington has been given a huge pay rise to extend his contract as Jon Snow in Game of Thrones
tv
News
ebooksAn unforgettable anthology of contemporary reportage
Life and Style
Taste the difference: Nell Frizzell tucks into a fry-up in Jesse's cafe in east London
food + drinkHow a bike accident left one woman living in a distorted world in which spices smell of old socks and muesli tastes like pork fat
Sport
Luke Shaw’s performance in the derby will be key to how his Manchester United side get on
footballBeating City is vital part of life at United. This is first major test for Shaw, Di Maria and Falcao – it’s not a game to lose
Life and Style
Google's doodle celebrating Halloween 2014
tech
Arts and Entertainment
Don’t send in the clowns: masks and make-up conceal true facial expressions, thwarting our instinct to read people’s minds through their faces, as seen in ‘It’
filmThis Halloween, we ask what makes Ouija boards, demon dolls, and evil clowns so frightening?
News
peopleFarage challenges 'liberally biased' comedians to 'call him a narcissist'
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

Finance Assistant - Part time - 9 month FTC

£20000 - £23250 Per Annum pro rata: Clearwater People Solutions Ltd: Pro rata ...

Marketing Manager

£40 - 48k + Benefits: Guru Careers: We are seeking a Marketing Manager to join...

Market Risk Manager - Investment Banking - Mandarin Speaker

£45,000 - £65,000: Saxton Leigh: Our client is a well-known APAC Corporate and...

Compensation and Benefits Manager - Brentwood - Circa £60,000

£60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...

Day In a Page

The drugs revolution starts now as MPs agree its high time for change

The drugs revolution starts now as MPs agree its high time for change

Commons debate highlights growing cross-party consensus on softening UK drugs legislation, unchanged for 43 years
The camera is turned on tabloid editors in Richard Peppiatt's 'One Rogue Reporter'

Gotcha! The camera is turned on tabloid editors

Hugh Grant says Richard Peppiatt's 'One Rogue Reporter' documentary will highlight issues raised by Leveson
Fall of the Berlin Wall: It was thanks to Mikhail Gorbachev that this symbol of division fell

Fall of the Berlin Wall

It was thanks to Gorbachev that this symbol of division fell
Halloween 2014: What makes Ouija boards, demon dolls, and evil clowns so frightening?

What makes ouija boards and demon dolls scary?

Ouija boards, demon dolls, evil children and clowns are all classic tropes of horror, and this year’s Halloween releases feature them all. What makes them so frightening, decade after decade?
A safari in modern Britain: Rose Rouse reveals how her four-year tour of Harlesden taught her as much about the UK as it did about NW10

Rose Rouse's safari in modern Britain

Rouse decided to walk and talk with as many different people as possible in her neighbourhood of Harlesden and her experiences have been published in a new book
Welcome to my world of no smell and odd tastes: How a bike accident left one woman living with unwanted food mash-ups

'My world of no smell and odd tastes'

A head injury from a bicycle accident had the surprising effect of robbing Nell Frizzell of two of her senses

Matt Parker is proud of his square roots

The "stand-up mathematician" is using comedy nights to preach maths to big audiences
Paul Scholes column: Beating Manchester City is vital part of life at Manchester United. This is first major test for Luke Shaw, Angel Di Maria and Radamel Falcao – it’s not a game to lose

Paul Scholes column

Beating City is vital part of life at United. This is first major test for Shaw, Di Maria and Falcao – it’s not a game to lose
Frank Warren: Call me an old git, but I just can't see that there's a place for women’s boxing

Frank Warren column

Call me an old git, but I just can't see that there's a place for women’s boxing
Adrian Heath interview: Former Everton striker prepares his Orlando City side for the MLS - and having Kaka in the dressing room

Adrian Heath's American dream...

Former Everton striker prepares his Orlando City side for the MLS - and having Kaka in the dressing room
Simon Hart: Manchester City will rise again but they need to change their attitude

Manchester City will rise again but they need to change their attitude

Manuel Pellegrini’s side are too good to fail and derby allows them to start again, says Simon Hart
Isis in Syria: A general reveals the lack of communication with the US - and his country's awkward relationship with their allies-by-default

A Syrian general speaks

A senior officer of Bashar al-Assad’s regime talks to Robert Fisk about his army’s brutal struggle with Isis, in a dirty war whose challenges include widespread atrocities
‘A bit of a shock...’ Cambridge economist with Glasgow roots becomes Zambia’s acting President

‘A bit of a shock...’ Economist with Glasgow roots becomes Zambia’s acting President

Guy Scott's predecessor, Michael Sata, died in a London hospital this week after a lengthy illness
Fall of the Berlin Wall: History catches up with Erich Honecker - the East German leader who praised the Iron Curtain and claimed it prevented a Third World War

Fall of the Berlin Wall

History catches up with Erich Honecker - the East German leader who praised the Iron Curtain and claimed it prevented a Third World War
How to turn your mobile phone into easy money

Turn your mobile phone into easy money

There are 90 million unused mobiles in the UK, which would be worth £7bn if we cashed them in, says David Crookes