The new 20 per cent uplift in capped income withdrawals will come into force on 26 March this year, and people could start to see the benefit of this uplift from the start of their new income year following that date.

New gender neutral rules
An income year is driven by the date a person first started taking income withdrawals from their pension. While people do not need to take any action for this uplift to take effect, women could see their income rise by over 20 per cent as a result of the new gender neutral rules, but they need to take steps to achieve this.

Changes to the maximum capped income calculation as a result of gender neutrality commenced on 21 December 2012. The factors that determine the amount of income withdrawals that men and women are permitted to take from their pension each year is now identical, which means the position for women has improved significantly.

Extremely beneficial for women
To benefit from the new gender neutral rates, an income recalculation point is needed for women. It could be extremely beneficial for women to take this action, especially if more income is needed to live on.

The 20 per cent uplift in pension income will happen automatically, However, women can now benefit from enhanced gender neutral terms, so if applicable to you, it is important you find out whether triggering a recalculation could increase your income even further.

Some pension schemes have the flexibility to recalculate the income annually, making it easy for women to take advantage of this enhancement. For those who are in a scheme that does not offer annual reviews, you could still trigger a recalculation by transferring new money into your capped income fund, but you should always seek professional financial advice to ensure this is the best option.

Make sure you take advantage of the wide range of year-end tax planning opportunities available this year. Here is our checklist of the main top ten areas to consider for you, your family and your business.

For myself AND my family I have…
Made the most of my 2012/13 Individual Savings Account (ISA) allowance

Taken advantage of increased pension contributions to reduce taxable income

Ensured that I have a tax-efficient gifting strategy

Used my annual capital gains tax exempt amount

Reviewed my estate planning and my Will

For my business I have…
Extracted profit from my business at the lowest tax cost

Made sure my staff remuneration packages are tax-efficient

Carefully considered the timing of asset purchases and sales

Recorded any appropriate constructive obligations in respect of employment awards

Planned the purchase of business equipment to take full advantage of capital allowances
Are you satisfied you are paying the minimum tax necessary? 

As everyone’s circumstances are different, we would be delighted to review yours with you so we can help you make the maximum tax savings. To discuss how we could help ensure that you are not paying any more tax than you absolutely need to, please contact us for further information.

From birth to age 21, parents spend an average of £19,270 on food and £16,195 on holidays – which now cost 4 per cent more than last year. In fact, in the last decade, costs have risen in all areas of expenditure apart from clothing, which has seen a 5 per cent drop.

Looking after the pennies
Mums and dads all over Britain are tightening their purse strings, with more than three-quarters of parents (76 per cent) forced to make cutbacks to make ends meet. While many are reining in spending on luxuries such as holidays (45 per cent), more than a quarter are also cutting back how much they spend on essentials such as food (27 per cent).

Of those parents who are cutting back, 68 per cent have switched to buying cheaper or value goods. Vouchers and discount codes are also popular, with 56 per cent of these parents using them to save on shopping bills. Many are also trying to boost their income, with 40 per cent selling personal items online or at car boot sales.

Pushing parents’ finances to the limit
The cost of raising a child continues to soar and is now at a ten-year high. Everyone wants the best for their children, but the rising cost of living is pushing parents’ finances to the limit. There seems to be no sign of this trend reversing. If the costs associated with bringing up children continue to rise at the same pace, parents could face a bill of over £350,000 in ten years’ time [2].
Over the last ten years, London (£239,123), the South East (£237,233) and the East of England (£233,363) have remained the three most expensive places to raise children. Ten years ago this was closely followed by Wales, whereas now it is Northern Ireland (£232,883).

Families in the South West have seen the biggest hike in costs, now paying £100,077 more per child than they were ten years ago.

Keeping up with the latest technological advances
Forget dolls and train sets. Today’s children want the same toys as their parents, and the popularity of smartphones, tablets and laptops is adding to the expense of raising a child.
Many parents feel under pressure to keep up with the latest technological advances – even for children as young as three years old. Almost a third (28 per cent) of parents have bought their child an electronic gadget in the last 12 months, with around a fifth (18 per cent) paying out for a laptop or tablet. The average yearly amount parents spend on these gadgets for their child is £302.

Protecting the family’s financial future
Many families are responding to financial pressures by saving less and spending less. Two-fifths (40 per cent) of parents have reduced the amount they are putting towards savings and a further 26 per cent (up from 22 per cent last year) have cancelled or reviewed insurance policies to try to save money.

Almost half (47 per cent) of parents have no life cover, income protection or critical illness cover in place. While 36 per cent of parents do have life cover, only 11 per cent have critical illness cover and a meagre 6 per cent have income protection.

Catastrophic implications on the family’s finances
The cost of raising a child won’t always be the first thing parents think about when deciding to have a family, and regardless of the cost, people wouldn’t change having children for the world. But parents considering cancelling insurance such as life cover or income protection as a way of saving money need to think long term. It could have catastrophic implications on the family’s finances if either parent became unable to work or was no longer around.

The cost of raising a child has increased rapidly over the last decade and looks set to continue rising. It is imperative that parents make sure they financially protect themselves and their family and seek professional financial advice to talk about what best suits their needs.

[1] The ‘cost of a child’ calculations, from birth to 21 years, have been compiled by the Centre for Economics and Business Research (CEBR) on behalf of LV= in December 2012 and are based on the cost for the 21-year period to December 2012.
The report also includes omnibus research conducted for LV= by Opinium Research from
11-13 December 2012. The total sample size was 2,013 UK adults. Results have been weighted to nationally representative criteria.
[2] If the cost of raising a child continued at the same pace as the last ten years (58 per cent increase), in 2023 the cost would be £351,483.
* Does not include private school fees.
Parents who send their children to private school can add £106,428 for a child at day school, and £195,745 for a child who boards, to the overall cost of raising a child.

How do you generate a reliable income when interest rates are stuck at all-time lows and the Bank of England’s quantitative easing policy of ’printing’ money is squeezing yields on government bonds (gilts) and other investments?

Your ability to generate income
With more of us living longer in the UK, maintaining our standard of living in retirement and funding holidays and outings requires some careful planning. Have you considered how a longer lifespan and rising inflation could affect you and your ability to generate income?

Generating an income from your investments will be an important requirement, especially if you’ve retired or are approaching retirement, or if you need to supplement your salary or have a relatively short investment timeframe.

Fixed interest
The most popular forms of income investment are bonds (which are also known as ‘fixed interest’ investments) and cash, both of which pay a regular, consistent rate of interest either annually, twice a year or four times a year. You can also obtain an income from shares in the form of dividends, and many equity funds are set up solely with the purpose of generating a stable income. Importantly, equity income funds often aim to achieve not only stability, but also an increasing income in the long term.

Good cash flow
Income stocks are most usually found in solid industries with established companies that generate good cash flow. They have little need to reinvest their profits to help grow the business or fund research and new product development and are therefore able to pay sizeable dividends back to their investors. Examples of traditional income-generating companies include utilities, such as oil and gas, telephone companies, banks and insurance companies.

You should remember that these investments do not include the same security of capital that is afforded by a deposit account.

10 income investing tips

1 Sustainable long-term dividend growth – Investing in businesses when the growth potential is not reflected in the valuation of their shares not only reduces the risk of losing money, it increases the upside opportunity.

2 Inflation matters – Always bear in mind the detrimental effect of inflation. Corporate and government bonds offer higher yields than cash but returns can be eroded by inflation. Investment in property or equities provides a vehicle to help achieve an income that rises to keep pace with inflation.

3 Consider international diversification – A small number of UK companies account for approximately 40 per cent of UK dividend payouts. This compares with over 100 companies in the US, for example, that provide the opportunity to increase the longevity of dividend growth.

4 Patience is a virtue – Investing for income is all about the compounding of returns for the long term. As a general rule, those businesses best placed to offer this demonstrate consistent returns on invested capital and visible earnings streams.

5 Reliability is the key – Select sectors of the equity market that do not depend on strong economic growth to deliver attractive returns to investors.

6 High and growing free cash flow – Look for companies with money left over after all capital expenditure, as this is the stream out of which rising dividends are paid. The larger the free cash flow relative to the dividend payout the better.

7 Dividend growth – In the short term, share prices are buffeted by all sorts of influences, but over longer time periods fundamentals have the opportunity to shine through. Dividend growth is the key determinant of long-term share price movements – the rest is sentiment.

8 Cautious approach – Profits and dividends of utility companies are at the whim of the regulator. Be cautious of companies that pay a high dividend because they have gone ex-growth – such a position is not usually sustainable indefinitely.

9 Investment diversification – The first rule of investment is often said to be ’spread risk’. Diminishing risk is particularly important for income-seekers who cannot afford to lose capital.

10 Tax-efficiency – Increase your net income by using an ISA (Individual Savings Account). The proceeds from ISA income is free of taxation, thereby potentially improving the amount of income you actually receive. UK dividend income has been taxed at source at the rate of 10 per cent and this cannot be reclaimed by anyone. The proceeds from ISAs are also free from capital gains tax, allowing you to switch funds or cash in without a tax charge.
The economic environment has been particularly unforgiving for investors who need to generate an income. The Bank of England reduced interest rates to a record low level as the financial crisis deepened – and savings rates followed.

Past performance is not necessarily a guide to the future. The value of investments and the income from them can fall as well as rise as a result of market and currency fluctuations and you may not get back the amount originally invested. Tax assumptions are subject to statutory change and the value of tax relief (if any) will depend upon your individual circumstances.

If you save through a private pension, when you approach retirement age you’ll have to decide what to do with the pension fund you have built up. If applicable to you, one option is to buy an annuity. It’s important to find an annuity that suits you and provides the best deal because, after your property, an annuity is probably the biggest purchase you will ever make.

An annuity is the annual pension that many people buy with their private pension pots when they retire.

Purchasing your annuity is an important one-off decision that has long-term consequences if you get it wrong. You may not receive the best deal if you just take the annuity offered by the insurer that has been investing your money.

Lack of advice might be costly
You only have one opportunity to shop around for your annuity. Once you have committed to an annuity provider and started to receive an income, the decision can’t be reversed. So it is essential that you shop around and obtain professional financial advice to help you through the process.

Last year, the National Association of Pension Funds (NAPF) announced that the lack of advice in this area might be costing half a million retirees each year as much as £1bn in future pension income.

Failure to shop around
The NAPF pointed out that the failure of someone to shop around – or being unaware they were able to do so – might reduce their annual pension income by a third.
The insurance industry has now agreed to reform its annuity practices, and from 1 March this year insurers will have to conform to new guidelines set down by the Association of British Insurers (ABI).

New guidelines will require insurers to:

Provide clear and consistent information, including details on how to shop around for an annuity

Highlight the details of enhanced annuities – the higher pension income available to those with shorter
life expectancy

Signpost clients to external advice and support
that is available

Give a clear picture of how their products fit into the wider annuity market

The point of retirement
Insurers have been obliged since 2002 to draw their clients’ attention to the fact that they can shop around for an annuity at the point of retirement.

One of the ways in which people may end up with too small an annuity is by not taking into account their own medical circumstances. Having conditions as seemingly manageable as high blood pressure or diabetes could qualify you for an enhanced annuity, which could pay you more income because your average life expectancy may be less.
Live better in retirement
If you are approaching your retirement we can take you through the process step by step to find the best annuity for you. Your retirement should be a special time when you do those things you never had the opportunity to do before. So it’s essential you think and plan carefully, as the decisions you take now cannot be undone later. If you are concerned about your retirement provision, please contact us to review your current situation.

People are living longer and the number of retirees is growing. Longevity should be a blessing but many investors are worried they will outlive their savings. So it is essential to consider saving for retirement as early as possible and to decide where best to invest for your requirements.

Deciding how to plan
There is a bewildering choice when deciding how to plan for your retirement, and it is important to weigh up the cost and complexity against the potential returns. If appropriate, one option to consider is a Self-Invested Personal Pension (SIPP). Originally designed for people with higher-value pension funds, they’ve become more prevalent since the UK pension simplification legislation of 2006.

SIPPs are tax-efficient wrappers within which you can select your own pension investments from a wide variety of sources and choose how to spread your money among a whole range of different investment types subject to both HM Revenue & Customs rules and any limits set by the SIPP provider.

Tax-efficiency
A SIPP offers the same tax benefits as other personal pension plans, with personal contributions eligible for Income Tax relief and investments within the SIPP able to grow free of Capital Gains Tax.

Investment choice
You can invest in a wide range of investments and this includes any number of approved funds. Most SIPP providers allow you to select from a range of assets, including:

• stocks and shares quoted on a recognised UK or overseas stock exchange
• government securities
• unit trusts
• investment companies
• insurance company funds
• traded endowment policies
• deposit accounts with banks and building societies
• National Savings products
• commercial property (such as offices, shops or factory premises)

Retirement flexibility
A SIPP allows you to choose from the full range of options at retirement, from purchasing an annuity to taking a managed income withdrawal from your fund.
The SIPP wrapper is separate from the contents and, as such, has distinct, often fixed charges. Because you can now accumulate a number of pensions over your working life, consolidating them all into a SIPP means that you have one company carrying out your pension administration. This could reduce your reporting and paperwork; however, you should ensure that the additional investment options a SIPP provides are required, as it can cost more to administer than a normal personal pension plan.

SIPPs are appropriate for people comfortable with making their own investment decisions and are not a risk-free product. The capital may be at risk due to the investments held within this pension arrangement; the value of investments can go down as well as up and you could get back less than you invested. Tax reliefs will also depend on your personal circumstances and the pension and tax rules are subject to change by the government.

Information is based on our current understanding of taxation legislation and regulations. A SIPP is a long-term investment, and the fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.

Whatever your needs, we can help. You may wish to entrust the entire wealth management process to us, or make the investment decisions yourself and still leverage our extensive services and expertise.

Developing an investment strategy requires that you clearly define the short, medium and long term rational for your portfolio.

Questions that should be considered are:

Q: What are the investment objectives of your portfolio?
Q: What appropriate investment strategies will achieve these objectives?
Q: What is your attitude to risk tolerance relative to your objectives?
Q: What is your time horizon for achieving your objectives?

A clear road map
Defining your investment objectives will provide a clear road map for developing the proper investment strategy, with the correct balance of risk.

There are different types of risk involved with investing, so it’s important to find out what they are and think about how much risk you’re willing to take. It all depends on your attitude to risk (how much risk you are prepared to take) and what you are trying to achieve with your investments.

Investment considerations
It is important for you to establish the general purpose for creating the investment portfolio.

Such analysis should be undertaken:

• How much can you afford to invest?
• How long can you afford to be without the money you’ve invested (most investment products should be held for at least five years)?
• What do you want your investment to provide – capital growth (your original investment to increase), income or both?
• How much risk and what sort of risk are you prepared to take?
• Do you want to share costs and risks with other investors (by using a pooled investment, for example)?
• If you decide to invest using pooled investments, consider which type would be most suitable for you. The main differences between pooled investments are the way they pay tax and the risks they involve (especially investment trusts and with-profit funds).
• What are the tax benefit implications, what tax will you pay and can you reduce it?

Investment objectives
You may be looking for an investment to provide money for a specific purpose in the future. Alternatively, you might want an investment to provide extra income. So having decided that you are in a position to invest, the next thing to think about is: ‘What am I investing for?’ Your answer will help you to choose the most suitable type of investment for you. If you have a particular goal, you will need to think about how much you can afford and how long it might take you to achieve your goal.
You may have a lump sum to invest that you would like to see grow or from which you wish to draw an income. Equally, you may decide to invest in instalments (for example, on a monthly basis) with a view to building up a lump sum.

Risk return trade-off
Through a balancing process of the potential risk return trade-off, your portfolio objectives can be achieved. All investment strategies used to achieve the objectives must focus on these two important portfolio elements, ‘risk and return’.

The best investment strategy is the one that achieves your objectives with the correct balance of the risk return trade-off, viewed over the proper duration or time horizon. The asset class, which has historically provided higher returns over the long term risk adjusted, is equities, followed by bonds. Equities contain the highest degree of risk volatility. However, the longer the duration or time horizon for equities, the lower the potential for volatility.

Investors typically hedge against volatility through an asset allocation across a diverse range of asset classes and strategies. A combination of these different asset classes and strategies should achieve the investment returns for investors relative to their objectives.

Delivering higher returns
Your investment goals should determine your investment strategy and the time question ‘How long have I got before I need to spend the money?’ is crucial.
Generally, the longer it is before you need your money, the greater the amount of risk you are able to take in the expectation of greater reward. The value of shares goes up and down in the short term and this can be very difficult to predict, but long term they can be expected to deliver higher returns. The same is true to a lesser extent of bonds. Only cash offers certainty in the short term.

Broadly speaking, you can invest in shares for the long term, fixed interest securities for the medium term and cash for the short term.

‘Lifestyle’ your investments
As the length of time you have shortens, you can change your total risk by adjusting the ‘asset mix’ of your investments – for example, by gradually moving from share investments into bonds and cash. It is often possible to choose an option to ‘lifestyle’ your investments, which is where your mix of assets is risk-adjusted to reflect your age and the time you have before you want to spend your money.

Income can be in the form of interest or share dividends. If you take and spend this income, your investments will grow more slowly than if you let it build up by reinvesting it. By not taking income you will earn interest on interest and the reinvested dividends should increase the size of your investment, which may then generate further growth. This is called ‘compounding’.

Information is based on our current understanding of taxation legislation and regulations. Levels and bases of and reliefs from taxation are subject to legislative change and their value depends on the individual circumstances of the investor. The value of your investments can go down as well as up and you may get back less than you invested.

Bad news can impact on any one of us at any time, in the form of an illness or sudden death. We don’t like to think about it but we do have to plan for it. So having the correct protection strategy in place will enable you to protect your family’s lifestyle if your income suddenly changes due to premature death or illness. However, choosing the right options can be difficult without obtaining professional advice to ensure you protect your family from financial hardship.

Obtaining advice is essential to making an informed decision about the most suitable sum assured, premium, terms and payment provisions. We work with our clients to create tailored protection strategies that meet their financial goals and needs and we’re committed to ensuring that our clients enjoy the best financial planning service available.

Whether you’re wanting to provide a financial safety net for your loved ones, moving house or a first-time buyer looking to arrange your mortgage life insurance – or simply wishing to add some cover to what you’ve already got – you’ll want to make sure you choose the right type of cover. That’s why obtaining the right advice and knowing which products to choose is essential.

Life assurance helps your dependants to cope financially in the event of your premature death. When you take out life assurance, you set the amount you want the policy to pay out should you die – this is called the ’sum assured’. Even if you consider that currently you have sufficient life assurance, you’ll probably need more later on if your circumstances change. If you don’t update your policy as key events happen throughout your life, you may risk being seriously under-insured.

As you reach different stages in your life, the need for protection will inevitably change. These are typical events when you should review your life assurance requirements:

• Buying your first home with a partner
• Having other debts and dependants
• Getting married or entering into a registered civil partnership
• Starting a family
• Becoming a stay-at-home parent
• Having more children
• Moving to a bigger property
• Salary increases
• Changing your job
• Reaching retirement
• Relying on someone else to support you
• Personal guarantee for business loans

Your life assurance premiums will vary according to a number of different factors, including the sum assured and the length of your policy (its ‘term’), plus individual lifestyle factors such as your age, occupation, gender, state of health and whether or not you smoke.

If you have a spouse, partner or children, you should have sufficient protection to pay off your mortgage and any other liabilities. After that, you may need life assurance to replace at least some of your income. How much money a family needs will vary from household to household so, ultimately, it’s up to you to decide how much money you would like to leave your family that would enable them to maintain their current standard of living.

There are two basic types of life assurance, ‘term’ and ‘whole-of-life’, but within those categories there are different variations.

The cheapest, simplest form of life assurance is term assurance. It is straightforward protection, there is no investment element and it pays out a lump sum if you die within a specified period. There are several types of term assurance.

The other type of protection available is a whole-of-life assurance policy designed to provide you with cover throughout your entire lifetime. The policy only pays out once the policyholder dies, providing the policyholder’s dependants with a lump sum, usually tax-free. Depending on the individual policy, policyholders may have to continue contributing right up until they die, or they may be able to stop paying in once they reach a stated age, even though the cover continues until they die.

If you or your partner is a non-taxpayer, make sure that you are not paying unnecessary tax on bank and savings accounts. Avoid the automatic 20 per cent tax deduction on interest by completing form R85 from your bank or product provider or reclaim it using form R40 from HM Revenue & Customs.

Individual Savings Accounts (ISAs)
You pay no personal income tax or capital gains tax on any growth in an ISA, or when you take your money out. You can save up to £11,280 per person in the 2012/13 tax year in an ISA.
If you invest in a Stocks and Shares ISA, any dividends you receive are paid net, with a 10 per cent tax credit. There is no further tax liability.

The impact of taxation (and any tax reliefs) depends on individual circumstances. Information about tax rules is based upon our current understanding and is liable to change in the future.

National Savings and Investments
You can shelter money in a tax-efficient way within this government-backed savings institution.

Unit Trusts and Open Ended Investment Companies (OEICs)
With a Unit Trust or OEIC your money is pooled with other investor’s money and can be invested in a range of sectors and assets such as stocks and shares, bonds or property.

Dividend income from OEICS and unit trusts invested in shares
If your fund is invested in shares then any dividend income that is paid to you (or accumulated within the fund if it is reinvested) carries a 10 per cent tax credit. If you are a basic rate or non taxpayer, there is no further income tax liability. Higher rate taxpayers have a total liability of 32.5 per cent on dividend income and the tax credit reduces this to 22.5 per cent, while the additional rate taxpayers have a total liability of 42.5 per cent reduced to 32.5 per cent after tax credit is applied.

Capital gains tax
No capital gains tax is paid on the growth in your money from the investments held within the fund, but when you sell, you may have to pay capital gains tax.

Bear in mind that you have a personal capital gains tax allowance that can help you limit any potential tax liability. After 23 June 2010 the rate of tax that applies on any gain over your allowance is either 18 per cent or 28 per cent depending on your taxable income.

Accumulated income
Accumulated income is interest or dividend payments which are not taken but instead reinvested into your fund. Even though they are reinvested they still count as income and are subject to the same tax rules as for dividend income and interest.

Onshore investment bonds
Investment bonds have a different tax treatment from other investments. This can lead to some valuable tax planning opportunities for individuals. There is no personal liability to capital gains tax or basic rate income tax on proceeds from your bonds. This is because the fund itself is subject to tax, equivalent to basic rate tax.

You can withdraw up to 5 per cent each year of the amount you have paid into your bond without paying any immediate tax on it. This allowance is cumulative so any unused part of this 5 per cent limit can be carried forward to future years (although the total cannot be greater than 100 per cent of the amount paid in).

If you are a higher or additional rate taxpayer now but know that you will become a basic rate taxpayer later (perhaps when you retire for example) then you might consider deferring any withdrawal from the bond (in excess of the accumulated 5 per cent allowances) until that time. If you do this, you will not need to pay tax on any gains from your bond.

Onshore investment bond considerations
Certain events during the lifetime of your bond may trigger a potential income tax liability:

• Death
• Some transfers of legal ownership of part or all of the bond
• On the maturity of the bond (except whole of life policies)

On full or final cashing in of your bond
If you withdraw more than the cumulative 5 per cent annual allowance, a tax liability is calculated on the amount withdrawn above the 5 per cent.

If you are a higher or additional rate taxpayer or the profit (gain) from your bond takes you into a higher or additional rate tax position as a result of any of the above events then you may have an income tax liability.

As you are presumed to have paid basic rate tax, the amount you would be liable for is the difference between the basic rate and higher or additional rate tax. The events may also affect your eligibility for certain tax credits.

Life assurance bonds held by UK corporate bonds fall under different legislation. Corporate investors cannot withdraw 5 per cent of their investment and defer the tax on this until the bond ends.

Offshore investment bonds
Offshore investment bonds are similar to UK investment bonds above but there is one main difference.

With an onshore bond tax is payable on gains made by the underlying investment, whereas with an offshore bond no income or capital gains tax is payable on the underlying investment. However, there may be an element of withholding tax that cannot be recovered.

The lack of tax on the underlying investment means that potentially it can grow faster than one that is taxed. Note that tax may be payable on a chargeable event at a basic, higher or additional rate tax as appropriate.

Remember that the value of your fund for both onshore and offshore bonds can fluctuate and you may not get back your original investment.

Offshore is a common term that is used to describe a range of locations where companies can offer customers growth on their funds that is largely free from tax. This includes “true offshore” locations such as the Channel Islands and Isle of Man, and other locations such as Dublin. Tax treatment can vary from one type of investment to another and from one market to another.

UK shares and taxation
If you own shares directly in a company you may be liable to tax.

Dividends
Any income (dividends) you receive from your shares carries a 10 per cent tax credit. Higher rate taxpayers have a total liability of 32.5 per cent on dividend income and the tax credit reduces this to 22.5 per cent, while the 50 per cent additional rate taxpayers have a total liability of 42.5 per cent reduced to 32.5 per cent after tax credit is applied.

Sales of shares
When you sell shares you may be liable to capital gains tax on any gains you may make. You have a yearly allowance, above which any gains are liable to 18 per cent tax. Special rules apply to working out your gains or losses.

Make the most of your personal income allowances
If you have a non-earning spouse, or civil partner, you can switch income-earning investments to help your tax bill. Everyone up to age 65 has a personal allowance of £8,105 in the 2012/13 tax year, rising to £10,500 between the ages of 65 and 74 and £10,660 at 75 and over. This means you can earn this amount without paying tax.

Use capital gains tax allowances wisely
Everyone can make up to a certain amount of profit each year from selling an investment or property without paying tax. Think about switching investments to a spouse’s or registered civil partner’s name to take advantage of both of your allowances.

The value of investments and the income from them can go down and up, and you may not get back as much as you paid in. Tax benefits and liabilities depend on individual circumstances and may change in the future.

Past performance is not a guide to the future.

The volatility in global markets over the past four years has tested the nerves of even the most experienced investors, making it a difficult time for individuals who rely on income from investments for some or all of their needs. The search for inflation-beating income is forcing many investors to move money out of cash accounts and into investment funds, with the aim of achieving a rising level of income. 
How should you decide between growth and income investments? Much will depend on your investment time frame and what you need the investment to provide for you. When considering the answer, it’s important not to ignore the concept of ‘total return’. Total return looks to combine income with capital growth to achieve the best overall return. One way of achieving this is with equity income funds, where investors saving for retirement could reinvest the income until the day they retire and then elect to have it paid to them instead, producing an income without the costs of completely overhauling their portfolio.

Index-linked investments, such as certain gilts and National Savings certificates, can protect against inflation eroding capital and income, but in today’s low-inflation world investors need to compare the total return to that available from an ordinary gilt or savings account.

Balance between the different asset types

Wealthier investors, who can cope with a little fluctuation in their income and capital, could look to include corporate bonds, property and dividend-paying shares. Bonds and property traditionally pay higher yields than equity income shares, but equities have provided the greatest opportunity for capital growth and growth of income. A balance between the different asset types should provide the best chance for a reasonable and growing income.

Income-paying equity, bond and property funds can be a good investment for those investing for capital growth too, as it’s simple to arrange for income to be reinvested.

Whatever your preference, if you hold a variety of investments, both growth and income, you should be better prepared for whatever economic ups and downs might be ahead of you. As your financial situation changes over time, you should also be prepared to make the necessary adjustments to your investment portfolio and switch from growth assets to income as your investment needs change.

Levels and bases of and reliefs from taxation are subject to legislative change and their value depends on the individual circumstances of the investor. The value of your investments and income can go down as well as up and you may get back less than you invested.