The Reinvest Yield preference allows the yield on investments (unwrapped investments and ISAs) to be defaulted to either reinvest or pay out annually.
Voyant is currently set, by default, to reinvest yields rather than pay them out annually, but this can be easily changed either at the default/preference level or on an individual account basis.
When this default preference is unticked, the yield will be paid out annually, as illustrated below in the Let's See > Cash Flow chart shown in its detailed view.
Yield payments will be shown as a category of income and a colour in the charts.
The yields paid annually will be shown on both the Cash Flow and Investments tabs of the chart details panel.
When this setting is ticked, yields will be reinvested and added to the cost basis of the investment. They will not appear as an inflow in the cash flow.
In either case, any taxes on these yields (interest or dividends) will be paid in the year they are received.
Like most preferences, this default setting can still be changed for the individual investments within a plan. You will find the Reinvest Yield setting for individual investments on the Investments screen, under Advanced Settings > Growth & Yield.
The option is also available to switch the reinvestment of yields on or off at various times in the future using the software’s Step Up / Step Down facility. For example, your client wants to reinvest the dividends paid from his GIA from now until his retirement and then thereafter take the dividend as an annual income.
Plan Preferences vs. System Preferences
Changes to this setting on the mirror Default Inflation / Growth Rates panel in System Preferences, on the left side of the screen, will be used only going forward, as you create new client cases. System Preferences are used as a template only for new client cases. Changes to System Preferences will not retroactively affect your existing client cases.
If you want to change this preference in any existing client cases, you will need to open and edit them individually, in each case's Plan Preferences.
How to set the yield on investments
The settings for investments and pensions, on the Growth and Yield panels, are divided into three main components, which can be set according to the nature of the investment.
Growth = Capital Growth. Growth above and beyond the Purchase Value (i.e. the cost basis for the investment) is considered gains and will be taxed at the gains rate whenever gains are realised - i.e. usually when all or part of the investment is sold. Of course, CGT is calculated accounting for any previous capital losses on the ledger as well as the owner's (or owners') annual gains allowance.
Dividend Yield = Dividends paid and taxed annually at the dividend rate. If the Reinvest Yield option is ticked, the dividend will still be taxed annually at the dividend rate but not taken as an income. It will instead be reinvested into the fund and added to its cost basis.
Interest Yield = Interest paid on the investment, which is taxed annually as income (at income tax rates).
If you use asset allocations (i.e. model portfolios) to derive growth from market assumptions in the software, an asset allocation may or may not be inclusive of yield, depending on the market assumptions you use. The software's standard assumptions are not inclusive of yield, which means the asset allocation you choose relates only to capital growth. Any yield, be it interest or dividends, would need to be entered manually for the investment on the Growth panel.
Custom market assumptions may, however, be set to be inclusive of yields. This is done in Preferences > Market Assumptions.
If Above Assumptions Include Yield is ticked on the Market Assumptions panel, then the yields on the software's Growth panels will be greyed out (disabled) whenever the option to Use Asset Allocation is selected.
Yield will then be derived based on the settings on the Preferences > Market Assumptions > Yield Data panel.
First Published 02 September 2015, Release 4.0.19
Related topics
Growth and Yield - Setting capital growth, dividends and interest on investments
Dividend Income - Where to enter dividend income from ownership of a company or an investment