Accumulating pay no dividends, but everything is automagically reinvested. Distributing pay out. Whether the acc funds pay tax in the background I'm not sure. Look on the Deutsche Bank ETF website for some funds.
So you're saying that ETF's that are only there for capital gains and not dividend payouts are the way to go?
I thought I would need the dividends to live off. For example once the dividends were paying out £10000, that would allow me to retire?
Was I on the wrong path thinking like this?
I spoke to iWeb and they said that any dividends are automatically re-invested on the HUKX.L and the HMCX.L.
I don't know what I'm looking at with the Deutsche Bank ETF?
It doesn't make it clear on the site how tax is paid?
Are you saying there are Deutsche Bank do British ETFs domiciled in the UK?
You need to make sure you stay tax resident in the UK; if you're overseas too much you might get in a muddle (usually it's half a year in the tax year).
I also thought if you were living abroad that would help your tax situation?
Your Personal Allowance is 10k yes, so if you don't get more than that once you retire, no tax. The point is what happens while you're saving and investing - it's all compounding, but if you're earning 30k and getting 5k of dividends, you'll be losing a lot of that 5k. Once you retire, if you're living frugally, it matters less.
Ahh I see, so If I'm on 25k pa with my current job, that affects the way my investments ate taxed?
Also - you say you have two rentals, well, income from them will go against your allowance.
I have two rental properties, the mortgages outstanding are £90k and £93k respectively.
Would it be better to try and get a share portfolio of £183k and just pay them both off instead of living of dividends?
The FTSE 250 generally has a lower yield than the FTSE 100. So you'd pay less tax on that if you hold it in a non sheltered account.
So you're saying after I've put all my bonds in the ISA, the FTSE 250 ETF's should be my next choice to fill up the ISA?
I'm going to cut to the chase here. I feel a lot of what you've said is relevant to me, I'm just not sure how.
My overall goal is to get a passive income stream of £10k.
How would you go about it in my situation.
Phew. Ok.
With iWeb you have the choice of dividend handling. Reinvest (whole units, ie if you have 19.99 in dividends but each share is 20.00, you'll get 19.99 in cash), hold in account as cash, or pay to your bank.
Tax is progressive. The first 10k in the UK (near enough) is tax free; that is your personal allowance. After that, you pay tax. If you have lots of different kinds of income it gets complicated. Anything in a pension is not taxed until you withdraw it, anything in an ISA is not taxed full stop.
Your rentals - need more info on whether or not they are cashflowing. Living off rental income is fine, but you want some serious cash hanging about for periods of vacancy and renovations. In the UK I guess 0.5% is reasonable as rent (gross) per month - so on a 100k property, if you were getting 500+ you'd be doing ok.
Pretty much no ETFs are UK domiciled; they all seem to be Irish (which is fine, no tax is withheld). Sorry, "all" is too strong, but the HSBC ones, Vanguard, etc are. They are on the London Stock Exchange though. I'm saying the opposite with HMCX; that is a good candidate for OUTSIDE a pension or ISA as it pays lower dividends so there will be less tax (because there is less income to tax).
Eg: You earn 25k, get 5k after expenses from your rental properties, and 10k from (Irish domiciled) ETFs. Your gross income is 40k. You are going to pay approximately 20% in tax on 30k of that (excl. the 10k personal allowance), but of course you also pay National Insurance on your employment income. You do NOT pay that, just tax, on the other sources of income.
I suggested the 'acc' funds just while you are gearing up for retirement. Once you've retired you want distributing ones, as you say, to live on.
The general rule for a balanced stock/bond portfolio is that you can safely withdraw 4% of the total (including divis!) a year - meaning, if you want 10k, you should have 250k invested.
Clear as mud?