How much do you need to live off dividends?

Monthly salary from dividends?

How much capital do you need to live just from dividends. According to the experts the realistic capital requirements to have around £1000 in dividends every month is between: £250-£350k invested in dividend stocks, funds, high yield bonds.

The key is to choose wisely:

1. Companies/funds with steady growing dividends.
2. Choose investments which pay dividends at different months.
3. Invest in ISA allowance first to get tax free income. (If you have a large capital and can’t use ISA it’s probably best to keep most accumulation, low yielding investments outside ISA and make use of free CGT (Capital Gain Tax) so you do not pay too much income tax on dividends (the most high yield investment will be held in an ISA wrapper)

Here I try to highlight few interesting articles on that subject and share my view:

Sources:

1. Four portfolios to generate a £1,000 monthly income – Telegraph
2. Dividend Yield Portfolio – mainly US market – SeekingAplha
3. Can I live off the natural yield of my portfolio?
4. Dividends and taxes (UK)
5. UK Highest Dividend Stocks from Investor Chronicle
6. How to make your investments pay a monthly ‘salary – Telegraph
7. How much money do you need to live off dividends – Hargreaves Lansdown

Investing in personal assets (i.e: stocks, funds) using UK Limited company.

Investing cash surpluses laying in ltd. company

Let’s be honest. To live off dividends you need a large starting capital. I started to investigate this subject as I am in position of large cash surpluses in my ltd. company. A lot of contractors are in the similar position. They asked over the web how to invest cash surpluses. I could not find any good satisfying answer. When random people gave answer you could not take it seriously. Articles from accounting companies were all similar and just touched this subject without any good insight. Just tried to be cautious as trading company could become investment company and the Entrepreneurs Relief could be lost.

But after some research I have come up with the idea that my ltd. company could be a perfect for investment. Again, your goal and financial situation may be different than mine so make it straight and I show you what was my goal to achieve with my ltd. company investing in shares, funds:

1. I live a modest life. I have always traded overtimes for “time in lieu” and the same with my company. My first goal would be to have a monthly income from dividends.
2. Do not touch capital if possible just “natural yields” so live off only from dividends. Automate my trading activities or maybe resign from it completely and enjoy a free time (hobbies and family)
3. This capital would be a ‘Family investment company’ so the next generations can enjoy life as well.

After the short research I found a really good article to support my idea. Still it’s better to speak to good tax/financial adviser but the following article is a good starting point:

https://www.taxation.co.uk/Articles/2015/02/24/332718/all-wrapped

Ok, so my conclusion is that my limited company could be a very good vehicle for ‘family investment company’. At this moment I do not know how to distribute shares to family members, how to construct my Will, ect.( I am going to research it later on so stay tuned and please add this article to favourites so you know where to come back in the future)

Ok. So now I had some trouble with the research how much do I need and how to invest to maximise income from dividends. I created some criteria:

1. Invest in only UK shares and funds registered in UK. There is one very important, even crucial reason to living off dividends by investing through ltd. company: My Ltd. company should work as an Income Tax wrapper – it can be done only by investing in UK companies as my UK limited company does not have to pay tax from dividends received and reinvest them gross. I could use it

ISA vs. UK Company for investing vs Personal Pension

• Ok, ISA is great and should be used first but only if you are a UK resident for tax purposes and the limits for purpose of living off dividends are low (althrough 2 people maxing ISA over 7 years could accumulate 280k. in income free account). I plan to move to the other country,  that’s why I needed another tax wrapper.
• Not sure how ISA would be taxed when you die and if you like me would like to pass most of it to family members. Issuing company shares in UK Company seems to be a better for passing the wealth to other generations.
• Personal Pension is good solution but only to invest the surplus in ‘growth and income’ funds/companies. Of course the big disadvantage is that you can access it from the age of 57 (in my case and may raise further, all depends of politics and it’s a long time and you can’t rely on their word).

ISA + Personal Pension (SIPP) + UK Company for keeping most personal assets – my strategy

I am still in UK so using ISA to keep:

1. Interest paying bonds, strategic bonds funds + non UK Equity Income (high dividends) shares funds. The reason for that is diversification. As I mentioned earlier on, UK Company is tax wrapper only for UK funds/shares paying dividends not for interest funds like bonds funds.

…. still writing (update soon)