Where should someone with no taxable income invest?

Brendan Burgess

Brendan Burgess

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A friend of mine has retired early and has no income other than deposit income and some small dividend income.

I thought this was discussed previously on Askaboutmoney but I can't find it.

Investing in a company like Ryanair which pays no dividends would not be a good idea as he will be taxed on the capital gains.

Property would be a good investment because of the high rental yield, but he wouldn't want the hassle.

How about buying shares in a Reit? It's taxed as if he has invested directly in property.

Brendan
 
He is single, so I think his only tax credit is €1,775 a year.

So he could earn €9,000 a year tax free

So investing €200k in a Reit at 5% would give him €10,000 income.

The oil companies and the tobacco companies are also high yielding. BP is paying 4.5%. I doubt he would invest in a tobacco company.

Brendan
 
Hi Brendan

I think a well-diversified, high yield investment trust, like City of London, would be ideal in these circumstances.

Does your pal have a pension fund (or funds)? If so, it might make sense to retire one of the funds (or split a bigger fund into separate PRSAs for this purpose) and draw down ~12,500 pa.

Personally, I’m not wild about REITs. There’s a reason iRes has a high yield…
 

Income Producing Investments

Does anyone have any views on good investments for producing income (dividends, rents etc.) Up until now my wife and I primarily invested in ETFs (pre tax rule changes). More recently it’s been a bunch of stocks, but predominantly Berkshire Hathaway (which pays no dividend). My wife will be...
www.askaboutmoney.com
 
Hi Sarenco

Accessing the pension early is a great idea. As far as I know he has a decent DC fund from his last employment.

Brendan
 
Sarenco said:
I think a well-diversified, high yield investment trust, like City of London, would be ideal in these circumstances.
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Wouldn't that (and others such as BP, BATS, etc. alluded to by @Brendan Burgess) be a UK investment so subject to UK withholding with no credit here so the net dividend would be assessable for Irish income tax so double taxation?

Dividend income

This page explains about dividend payments
www.revenue.ie www.revenue.ie
Dividends paid by UK companies

You pay Irish tax on the net dividend received by you. No credit is allowed for any UK tax already deducted from the dividend payment.
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Gordon Gekko said:
I think chasing dividends isn’t the best idea either.

The approach suggested by Sarenco is a good one.
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Doesn't high yield mean dividends?
Sarenco said:
I think a well-diversified, high yield investment trust, like City of London, would be ideal in these circumstances.
Click to expand...
What about the principle of somebody with no (earned) income looking at dividends because they are assessable for income tax (and PRSI/USC?) as opposed to other alternatives that are subject to DIRT, CGT, exit tax? Doesn't that make sense from a tax efficiency point of view? With the usual caveat of not allowing the tax tail to wag the investment dog...
 
ClubMan said:
Doesn't high yield mean dividends?

What about the principle of somebody with no (earned) income looking at dividends because they are assessable for income tax (and PRSI/USC?) as opposed to other alternatives that are subject to DIRT, CGT, exit tax? Doesn't that make sense from a tax efficiency point of view? With the usual caveat of not allowing the tax tail to wag the investment dog...
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It is letting the tax tail wag the investment dog. For example, a high dividend can be just a function of the share price collapsing. Total return should be the focus.
 
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Brendan Burgess said:
Property would be a good investment because of the high rental yield, but he wouldn't want the hassle
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A good property, well priced in a good area with good potential and with a bit of common sense applied to selecting tenants = a very good investment.

Always so doom and gloom on AAM re property investment. Yes, theres risks. Just do your due diligence.
 
ClubMan said:
a UK investment so subject to UK withholding with no credit here so the net dividend would be assessable for Irish income tax so double taxation?
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I don't think that there is a withholding tax on UK dividends.
There is an odd thing called a tax credit in respect of Corporation Tax paid by the company which UK shareholders may be able to claim. Irish shareholders can't.

In Ireland, a company pays tax on its profits.
The shareholder gets paid out of the net profits and gets no credit for the CT paid by the company.
It's effectively the same in the UK.

So Irish shareholders of Irish companies are double taxed.
That is why I think REITS may be worth considering. They are taxed as if if you owned the property directly.

Brendan
 
Sarenco said:
I think a well-diversified, high yield investment trust, like City of London, would be ideal in these circumstances.
Click to expand...

I will bring that to his attention.

www.hl.co.uk

City Of London Investment Trust (CTY) Ordinary 25p Shares Share Price | CTY

The latest City Of London Investment Trust share price (CTY). View recent trades and share price information for City Of London Investment Trust and other shares.
www.hl.co.uk www.hl.co.uk

A 4.8% yield is excellent.

Oil, weapons, alcohol, tobacco and drugs... what is not to like?

1686293785382.png
 
All those businesses make loads of profits and pay healthy dividends - cash rules, OK?
 
Brendan Burgess said:
A friend of mine has retired early and has no income other than deposit income and some small dividend income.

I thought this was discussed previously on Askaboutmoney but I can't find it.

Investing in a company like Ryanair which pays no dividends would not be a good idea as he will be taxed on the capital gains.

Property would be a good investment because of the high rental yield, but he wouldn't want the hassle.

How about buying shares in a Reit? It's taxed as if he has invested directly in property.

Brendan
Click to expand...

There's no info on what the investment objectives are? If he has pension funds, would an annuity be out of the question? His pension assets could be then be drawn from the ARF as needed.

The fallacy of "lifestyling"

Imagine I'm 65 today and for every 100k of pension fund my guaranteed annuity is €5,023pa for life with a 10 year guarantee. That's current annuity rates from Irish Life, I might be able to squeeze a little more out. Now let's compare that with a middle of the road ARF strategy which is, by...
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They could invest a few hours per week of their time to have some tax free earned income up to the limit of the paye allowance.
 
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