Budget 2015 - The joy of Equity Income investing

Budget 2015: I am not a qualified IFA, so none of the following can be taken as advice. I would also remind you that I may have got some fine detail wrong, so make sure you get proper advice if that is what you need. Overall though, what a great fiscal framework we have for an equity income investor. As Chancellor, George Osborne has made some radical fiscal changes to the environment for the personal saver. In normal times these would help anyone investing in a wide variety of income producing assets, but we do not live in normal times. An effect of Quantitative Easing and its like, is that high grade bond yields are derisory. Low bond yields have made the individual annuity an unattractive product and led to the recent, unprecedented, relaxation in personal pension fund rules. Property and equities seem to be the only major asset classes left that offer a realistic prospect of real returns at an acceptable level of risk.

As an equity investor there are two mainstream, tax efficient, ways to save, being pensions and ISAs. There are also equity vehicles such as EIS and VCT, but they do carry extra risks for the rewards and will not be suitable for many. Whilst annual pension contribution limits and reliefs have been repeatedly trimmed, for most people they will not find this a practical problem. The annual lifetime limit has also been cut, with the new level to be £1m, but most people can only dream of being affected such a problem. Start young enough though and you may just be surprised. Then, thanks to George, your pension pot can be accessed in a variety of ways, without using old style annuities, and you have the possibility of leaving your pension pot in your will, without a penal tax rate being applied. Likewise ISAs have been made more flexible, with the main distinctions between cash and stock ISAs abolished. The annual contribution limit having been raised to £15,240 for the coming tax year means that a visible pot can be accumulated quite quickly. In future it seems that you will also be able to dip in and out of the cash element within each tax year, adding greater flexibility to what used to be a near one-way valve. When you die, the ISA wrapper can be passed on, so avoiding moving the pot into the taxable space. The final carrot is that, in the taxable space, the first £1,000 of investment income on cash will be tax-free for basic rate taxpayers. Even if you pay tax at 40% you will still get a £500 allowance.

For most people, structuring your savings in a tax efficient manner has become an awful lot easier to do. Within that, the tried and trusted studies on the effects of re-investing dividends, from equity investments, have become more powerful thanks to the ability through various vehicles to take more investment income tax free. So the fiscal framework is very supportive. The difficult bit, as ever, is choosing the right equities or collective schemes to invest in. (Neil Cumming^, 19^th March 2015)

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about. www.dividendpower.co.uk or e-mail at info@dividendpower.co.uk  Twitter:  @DividendPower