London 9 July 2008 – Long-term savers who need a regular ‘income’ from their investments no longer have to opt for an insurance bond or a high income fund thanks to the withdrawal facility now available on most mutual funds.
The vast majority of Fidelity’s funds, and other investment firms’ funds registered on Fidelity FundsNetworkTM, the investment supermarket, have a regular withdrawal facility. Investors can set fixed monthly, quarterly, half-yearly or yearly withdrawal rates on any fund, regardless of whether the fund itself aims to deliver a particular level of income or yield.
Investors whose funds produce only capital gains can effectively take totally tax-free ‘income’ where the realised gains do not exceed £9,600 each year, provided that they have not used their capital gains tax (CGT) allowance for other investments. We estimate from Government statistics that fewer than 1 in 100 people make full use of the annual CGT allowance.*. Even better, for investors whose funds are in ISAs all of the gains are free from CGT.
For some investors, the withdrawal of gains from a mutual fund (even outside an ISA and above annual CGT allowance) can be a very tax-efficient way of securing a regular stream of payments. Especially for higher rate taxpayers, in comparison with income tax rates and effective tax rates from investment bond withdrawals, the new capital gains tax rate of just 18% looks appealing.
Peter Hicks, Executive Director of UK Retail at Fidelity International, says that investors who let their need for a regular income dictate their choice of fund unnecessarily narrow their choice of investment strategies. “Every single fund in the UK equity income sector has posted negative returns in the last 12 months, with the average fund falling in value by 14%.** This fall has been accompanied by pressure on the dividends of many high-yielding shares, while many UK growth funds have proved more resilient.
“The regular withdrawal facility on Fidelity FundsNetwork allows investors to choose lower-yield or even growth funds, and still take a regular ‘income’. Withdrawals combined with a fund that has a dividend based - rather than dividend constrained - growth strategy at its core such as the £470 million Fidelity MoneyBuilder Growth Fund***, may offer investors a more flexible alternative to a UK equity income fund.”
FIL Limited (“FIL”) and its subsidiary companies serve the major markets of the world by providing investment products and services to individuals and institutional investors outside the US. FIL Limited manages a total of £130.4 billion of assets****.
Notes to editors:
*Source: Fidelity FundsNetwork – Insurance bonds and collective investments, A treatise on investment and tax planning post-budget 2008. Spring 2008. HMRC figures estimate that fewer than 0.83% of individuals who pay income tax pay CGT and that 0.83% includes trusts paying CGT.
**Source: Morningstar. Bid to Bid, GBP, Basic rate tax-payers. 01.06.07 to 02.06.08.
Annualised growth rates, total return, sector median performance and ranks –
Data Source - © 2008 Morningstar, Inc. All Rights Reserved. The information contained herein:
(1) is proprietary to Morningstar and/or its content providers;
(2) may not be copied or distributed; and
(3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.
***Source: Fidelity as at 31.05.08
****Source: Fidelity as at 31.03.08
Any opinions expressed are made at the time of writing and can be subject to change without notification.
