The appeal of fixed income is growing as investors consider future changes to inheritance tax, says Rathbones.
According to the wealth manager, the upcoming inclusion of pensions in inheritance tax calculations is prompting a shift within conversations around how wealth is structured and passed on.
It said the role of income within portfolios is attracting renewed attention, particularly where it can support regular tax-efficient gifting without drawing on core capital.
Bryn Jones, head of fixed income at Rathbones, said: “After several years of rising interest rates, bond markets are offering income levels not seen for over a decade, while risks are more clearly priced.
“It is a very different backdrop for bonds than investors have seen for a long time, offering relatively rare opportunities. It’s not often you get a chance to invest in positive real income available across the credit spectrum.”
According to Richard Cook, senior financial planner at Rathbones, the distinction between capital and income is coming into sharper focus.
Cook said: “Where income exceeds day-to-day requirements, it can create flexibility. Rather than relying solely on capital, a natural and regular income stream can support a more gradual approach to transferring wealth, without it being subject to inheritance tax.
“For income-focused investors, particularly those using ISAs and SIPPs, higher yields materially improve the role bonds can play. The ability to generate a consistent income stream without eroding capital is increasingly relevant in the current environment.”
Positive real income can now be harnessed across much of the credit spectrum, something that has been largely absent for much of the past 10 years, the firm said.
Jones said: “Beyond income generation, fixed income is also being supported by improved risk-return characteristics.
“Higher starting yields and shorter duration across bond indices mean risk-adjusted returns are more attractive. In addition, bonds continue to play an important role in diversification and managing volatility, particularly in periods of geopolitical uncertainty or when equity markets are pressured.”
Within tax-efficient wrappers, the treatment of income and capital gains can further enhance outcomes over time, Rathbones noted.
Cook added: “Sheltering income within ISAs and SIPPs, and allowing it to compound, can be powerful over the long term. As the 2027 changes approach, income is becoming a more prominent part of the overall conversation, not just for portfolio construction, but in how wealth may ultimately be used.”
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