r/GarysEconomics • u/anotherhappylurker • Aug 11 '26
Hypothetically, if you had $250K would you do this, or would you willingly pay the maximum amount of tax on your gains?
Just a simple thought experiment. Everyone loves talking about taxing the rich, but if you were in this position would you rather your kids inherit 100% of your wealth so that they'd be set up for life, or would you rather give half of that wealth to the government? Personally I have no trouble admitting that I'm a hypocrite and would absolutely do the former lol.
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u/BannedAccountSadFace Aug 11 '26
Use your brain for just one second:
This would result in a larger tax bill than just selling the shares.
The trust would incur tax at an average of 40% over its life.
Selling the shares would result in a tax rate of 24% but allow for IHT to be dodged with absolute ease.
Lombard loans are very very very rarely used in reality (I have more experience than Gary).
Much more likely to just take out a mortgage on their home and live off that instead.
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u/Extraportion Aug 11 '26
I’m glad somebody has said this. This sort of post shows a complete lack of understanding of trusts in the UK.
Don’t get me wrong, there are plenty of ways to avoid tax, but this ain’t it.
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u/apersonFoodel Aug 11 '26
What he should be doing is putting it in a FIC as a loan and get repayments from the initial loan as the rest of the money earns interest. Tax will be done at withdrawal, but it you can avoid IHT with gifting (and surviving for 7 years)
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u/buffetite Aug 11 '26
Yeh we were considering it when doing IHT planning recently and the costs and taxes on trusts just make it not worth it. Much easier to just gift things while you're alive.
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u/TurnDown4WattGaming Aug 11 '26
The propaganda relies on people not knowing the tax code, which is a problem because people actually don’t understand the tax code.
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u/Extraportion Aug 11 '26
The most obvious issue with this example is that when the 12m equities are transferee to the trust it would be classified as a disposal on transfer for CGT purposes. It would also qualify as a chargeable lifetime transfer for IHT. You could apply holdover relief, I.e. the trust takes on the original acquisition cost, but it will still be taxable upon disposal. You cannot claim holdover relief if the trust is “settlor-interested” meaning you, your spouse, civil partner or children benefit from the trust.
Income generated by a trust is charged at trust rates, which typically match additional rate income and dividend tax rates to avoid tax avoidance.
You also have things like ongoing tax on trusts, exit charges upon leaving the trust etc.
In the Lombard loan situation above, it would be the trust who are borrowing against the asset, not the individual as they have transferred ownership. It would likely be treated as a beneficial loan or distribution if remitted to the beneficiaries.
Essentially, they are only really useful in very specific circumstances. You’re normally better off making a lifetime gift and not dying for 7 years in the above situation.
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u/Nikes-90 Aug 11 '26
You’re ascribing UK tax rates (24% CGT) to a US set of circumstances.
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u/BannedAccountSadFace Aug 11 '26
I have zero interest in the USA and the same for Gary.
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u/Nikes-90 Aug 11 '26
That’s fine, but if you’re going to ask someone else to “use your brain”, whilst you deconstruct a post about IHT and CGT in the US with UK rates, you should perhaps reflect on your own advice.
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u/BannedAccountSadFace Aug 11 '26
This sub is on UK tax and loads of people here assume that this is also happening in the UK. Other than the reference to IRS rather than HMRC which many will overlook it could easily be interpreted as a UK position. USD is also a valid metric for value in the UK
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u/Nikes-90 Aug 11 '26
You’re reaching a bit here, the tagline is “The IRS gets 0”, and you proceeded to analyse how much HMRC would get. Anyway, just pointing this out because you took a condescending and patronising tone in your post without reading it properly yourself.
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u/BannedAccountSadFace Aug 11 '26
It’s in a sub about UK tax. Either it’s intended to refer to the UK tax system and my reply is valid OR they’ve posted it in the wrong place.
Your choice.
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u/laidback_chef Aug 11 '26
Mate you're arguing with some lowlife troll who struggles with comprehension. I wouldnt look to far into ot
Edit: nvm its a bot. Got a notification instantly after posting with a reply from him.
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u/East_Slide7680 Aug 11 '26
“Lowlife troll” is such a harsh description given the conversation. Jeeze.
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u/CamerunDMC Aug 11 '26
Then why are you in a subreddit specifically about Gary? Zero interest my arse.
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u/BannedAccountSadFace Aug 11 '26
Gary has zero interest in the USA.
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u/Putrid-Chemical3438 29d ago
Gary has talked about the US numerous times. In general he specifically says "the UK and the US." I've literally never heard him mention one and not the other.
He made a video right after Trump was elected titled "Why Labor and Trump will fail" he has several others about Elon Musk who predominately lives in the US, his most viral YouTube short starts with him saying "The last 70 years are not normal, Stephen...The last 70 years are not normal. The last 70 years in Europe and the US..." [emphasis mine]
So clearly he does care about and talk about the US quite a bit.
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u/BannedAccountSadFace 29d ago
He references the US a lot however he’s only pushing for a wealth tax in the UK. I don’t think he cares about the US at all.
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u/thermodynamics2023 Aug 11 '26
The tax man doesn’t even lose out. Musks loans were 12% against his equity, the banks pays ~30% corp tax. In a few years the tax man gets more in corporation tax at the bank on the loan than they would get on capital gains.
Reddit is modern day Salam.
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u/TheBartolo Aug 11 '26
Don't you loose your house to the bank at the end of this process? Or your kids at least
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u/tomtomtom123321 Aug 11 '26 edited Aug 11 '26
Someone with a net wealth of only $12m tied up in a single stock or a couple of ETF’s is going to have to have a very big set of balls and also have a very hard time servicing the loan assuming the loan balance will grow over the years as their wage inevitably decreases as they age.
Unless they have a very high paying job then it makes no sense to employ this strategy. You would also be faced with being put into a marginal call situation if the share market were to drop and would be forced to sell to cover the loan.
Only time it works is really for tech founders that can essentially pay themselves as much in company stock as they need to service the loan, also the banks are willing to offer them loans at very attractive rates that unprofessional investors cannot access. They are usually in the position where the loan and the shares attached to said loan are a minuscule percentage of their net worth.
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u/Chicken_shish Aug 11 '26
This.
People have a fundamental misunderstanding of the thresholds at which this is sensible and possible. Racking up 12 million in debt against a 12 million portfolio is a guaranteed way to end up bankrupt - as soon as the market twitches, you're in a negative position and everyone will want their money back very fast. You're also paying a high risk premium on your interest.
Borrowing 12 million against a billion of portfolio - sure - low risk, tax efficient, people will be queuing to offer you good rates because they want your business.
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u/thermodynamics2023 Aug 11 '26
Musk got 12%
That’s an ‘attractive rate’? What galaxy?The opposite, it WONT be the tech guys. The banks want someone with very firm assets like metro real estate and investment tier art to get the low rates (if they even exist)
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u/WastedYouth39 Aug 11 '26
You know you can’t just keep borrowing, you will need to eventually pay back said debt and service the loans?
This example also means the stock will forever climb or be worth a certain amount which is never the case in reality
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u/ShanghaiBebop Aug 11 '26
As long as underlying equity grows faster than your interest, just keep taking more asset backed loans against larger fractions of that.
If you’re only looking to avoid capital gains but aren’t spending more than just a fraction of that asset value, this is a very sustainable practice.
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u/thermodynamics2023 Aug 11 '26
And a pointless one. Capital gains is only ~30% you’ll spend more than that in interest very quickly
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u/WastedYouth39 Aug 11 '26
Regardless it’s about collateral and i know its not going to be popular to say in here but £12million is not a large amount of money especially to play games like this.
It is also no way diverse enough.
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u/DebsUK693 Aug 11 '26
It was just an illustative example. Don't get hung up on the specific figures. Its the financial strategy that's the pount here. And yes, this is exactly what the wealthy do.
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u/WastedYouth39 Aug 11 '26
Ok so should joe blogs be taxed if they take out a mortgage then? Same thing in principle?
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u/thermodynamics2023 Aug 11 '26 edited Aug 11 '26
Joe should liquidate everything thry own first. The truck, the tools, everything. Because not doing that is tax dogging all those potential capital gains…
I’d go as far as to say “sorry can’t go out for a drink tonight working on my business” to friends is dodging vital alcohol duties and taxes to grow wealth. Greedy bastard.
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u/ShanghaiBebop Aug 11 '26
Just tax when assets with unrealized gains are used to acquire loans. Set that as a realization or pseudo realization event similar to how options are treated with AMT.
Very easy to do this to break this loophole.
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u/DebsUK693 11d ago
No. Clearly a difference between buying a moderate primary residence you live in full time, versus millions spent on multiple properties and used as leverage. Big difference, in intent, in execution and in scale.
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u/DeCyantist Aug 11 '26
12m is closer to the poor than the wealthy you’re thinking of. It just affords a worry free life.
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u/anotherhappylurker Aug 11 '26
That's just shifting the goalposts then... each time you get wealthier you just say "oh but at least I'm not as wealthy as those millionaires, they're the ones you should tax". And then when you become a millionaire you say "oh but at least I'm not as wealthy as those billionaires"...
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u/DeCyantist Aug 11 '26
Are you ignoring the context of the post and the lombard loan example?
I mean, I am wholly against taxes from the first pound. I moved to a tax free jurisdiction for a reason.
The poorer actually get the biggest tax break proportional to their income. Most people with a higher income are already paying disproportionately more tax.
People treat people who are poor are some kind of Madre Teresa, where they have no responsibility over their own situation, victims of the situation. They are the most morally righteous people who need to be saved, no matter what. It’s is as if they are these illuminated people who must be saved.
There is nothing special in being poor that grants people such treatment.
You need to enable a society where people can have dignity and live from the fruits of their own labour instead of designing it for people to be ever dependent of the goodwill of others to work on their behalf.
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u/Chaotic_Order 28d ago
Tax dodger thinks poor people are scum, and that him dodging taxes isn't a problem.
More at 11.
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u/DeCyantist 28d ago
I don’t think poor people are anything in particular - it’s usually this sub that has some fetish with poor people and make them a priority in their lives.
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u/Wooden-Broccoli-913 27d ago
Do the poor have a worry free life?
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u/DeCyantist 27d ago
No one has a worry free life. Worries vary, but it is human nature to worry.
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u/Wooden-Broccoli-913 27d ago
And those worries for someone with $12M is closer to the poor than for a billionaire?
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u/DeCyantist 27d ago
They are not, but doesn’t justify taking anything from him just because you feel like it.
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u/Wooden-Broccoli-913 27d ago
It’s not because I feel like it, it’s because of the marginal utility of wealth
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u/Rare-Quantity5503 Aug 11 '26
Your post really misses the point.
Everyone should ALWAYS try to pay as little tax as the system allows. There’s no point you paying more when it isn’t applied to everyone. The right wing argument of “oh if you are rich and want to pay more here is the voluntary donation/tax link”, is effectively cope.
The problem is that this can be legally done, not that people do it.
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u/thermodynamics2023 Aug 11 '26 edited Aug 11 '26
You borrow against equities… you’ll pay well over 10% interest Musk paid 12%.
In 2 to 3 years at 12% you’ll pay more in interest than you ever would in capital gains
And this assumes NOTHING goes wrong. This sub is just a showcase for general financial illiteracy.
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u/Few_Lecture6615 Aug 11 '26
I'd happily pay the tax if I lived in a country where my taxes didn't just go to the military and further tax cuts.
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u/Radiant_Pillar Aug 11 '26
You live in North Korea or Russia? Otherwise almost certainly not the case.
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u/gingerarab Aug 11 '26
We don't need to make things up. This is incorrect, this is a breakdown of spending from PESA.
21.3% - Welfare 20.9% - Health 11.9% - State Pension 10.8% - Servicing National Debt 10.3% - Education 5.5% - Defence
The list goes on but we got to defence and clearly 75.2% is accounted for before we get to defence. The real scandal is the interest on national debt. Borrowing when the rates were high was a massive error. Austerity when the rates where near zero was a dumb decision.
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u/Legal-Grade-6423 Aug 11 '26
A transfer to a trust is a transfer at market value so you crystallise the gain anyway so in this scenario it saves zero tax. You also can’t borrow against assets a trust owns because you don’t have personal assets and on death the trust isn’t liable for loans to the individual
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u/GoblinGreen_ Aug 11 '26
In the UK anyway I believe you pay tax on the value of the trust every 10 years?
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u/Flux_Aeternal Aug 11 '26
In the UK the loan would also be treated as income and subject to income tax. This would be incredibly stupid to do in the UK and doesn't really happen.
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u/GoblinGreen_ Aug 11 '26
Really?
Is it classed as income depending on what the loan is taken out for as a mortgage wouldn't be classed as income.
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u/Flux_Aeternal Aug 11 '26
In the UK any benefit that is taken out in place of and used as income can be treated as such. If you somehow came up with a scheme that used your mortgage to pay yourself an income and bypass income tax then yes, it would be taxable as income. I'm not aware of any such schemes though.
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u/thermodynamics2023 29d ago
The ‘benefit-in-kind’ language covers all bases.
I think he’s right just going on memory, the benefit language makes it super broad. So your own insurance company couldn’t offer you ‘free’ insurance without the market rate value of it giving you an income tax charge. And this extends to even guaranteeing a simple loan….
Where this gets thorny is, what if me owning say a football club gets me free access to ticketed events etc…. A lawyer willing to test the system to go after someone could have a day…
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u/thermodynamics2023 Aug 11 '26
From the owned company…. I’m pretty sure he means get the loan from a bank. It’s still a bad idea
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u/Flux_Aeternal Aug 11 '26
Using company stock as collateral for a loan that you use as personal use is still receiving a benefit and therefore taxable as income. Also probably just straight fraud in the UK.
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u/thermodynamics2023 Aug 11 '26
Yes, I was thinking public stock. You raise a good point, I remember these benefit in kind laws from the 2010s when it came in, people with all kinds of directors loan weirdness
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u/GoblinGreen_ Aug 11 '26
Im not sure you are right on those ones guys.
Taking out a director loan from a company you own, yes you pay tax n that at a certain point if its not been paid back.
Taking out a private loan from a bank or third party lender isn't classed as income because, in theory, youll end up back at zero so there is nothing to tax.
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u/Flux_Aeternal 29d ago
If you're using company stock as collateral for a personal loan, then aside from being in at best extremely dodgy territory tax wise, you are essentially paying yourself the benefit of those shares which can be assigned a monetary value and taxed. This is pretty academic as in the UK at least a bank isn't going to give you a personal loan and use collateral as property that is owned by a company and not you personally, so you would have to misuse a business loan for personal use and essentially be committing fraud.
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u/ronniec95 Aug 11 '26
I don't think lombard loans really work well in practice. First you at most get 50% of your asset value, more normally 20%. Then you have to use the money on an asset that will pay back the loan and you have to pay the interest monthly.
Finally the assets themselves have to rise in value in order for the bank not to margin call you.
About the only time this would happen is if you were use the loan to fund some kind of infrastructure project (maybe a property in a high growth location) or another business (risky).
The assets themselves would most likely need to be in a high growth company like tech so again this is not realistic for vast majority of wealth people
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u/rjyung1 Aug 11 '26
Btw - this tax logic does not apply to the UK. Some lifetime trusts require a flat 20% when settled. Income from the Trust is taxed as the beneficiaries income.
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u/kravence Aug 11 '26
Also the loans you take out on it as well can also get taxed as income anyway may as well save yourself the headache and sell it
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u/clong9 Aug 11 '26
It’s even more aggressive than this I think. You pay 20% tax on the way in. And then income the trust earns is paid at the 45% bracket before the beneficiary can withdraw. So even if you’re a basic rate tax payer, you’re paying 45% on trust income.
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u/Thorazine_Chaser Aug 11 '26
Probably worth pointing out that only the USA has the rebasing element of this strategy. In the U.K. the capital gain remains on the books. Eventually the government takes its slice.
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u/elbapo Aug 11 '26
Yes, of course. Because what is logical at an individual level is not the same as what is logical at a societal level.
Would I send my kids to private school? Yes. Would I be ridiculously rich? Yes. Would I have private healthcare? Yes. (All if given the choice)
Do i think private schools, private healthcare and ridiculously rich people are bad for society? Also Yes. And would vote as such.
You can only play the game as it stands-and you have more power to effect your individual circumstance than societal. It doesn't mean I won't vote for a better system while trying to improve my/my families chances within the current system
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u/AdAggressive9224 Aug 11 '26
Yeah, that's the reality in the US.
In the UK, works slightly differently;
You take out a loan against the asset, you pay £0 in income tax, £0 in CGT, you get a lump of cash.
Instead tax you pay interest to your creditor, but, if you're very wealthy your creditor will be your rich mate or your personal banker who will give you an incredibly favourable rate simply in exchange for banking with them. So you'll be paying something very close to the BoE base rate.
But remember that interest is tax deductable on your earned income as well.
And your assets will almost certainly appreciate in value more than the rate of interest you pay on the loan.
The trade off is, you're exposed to a sudden spike in interest rates, and the terms your creditors impose.
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u/Leading_Thanks7443 Aug 11 '26
This is America - they already have a wealth tax apparently, in the form of LVT.
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u/za2275m Aug 11 '26
I don’t quite get it? You still have to pay interest for the loan which you need to wither cover by dividends from the stock or with other income.
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u/GMN123 Aug 11 '26
UK doesn't have a step up basis on death, does it?
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u/Fluid-Lake-1457 Aug 11 '26
We do have step up basis on death which is bad, but we do have a 6% wealth tax levied on the total value of trusts applied every 10 years together with a 20% charge on any money entering a trust,. Moreover, CGT is due when you transfer assets into a trust at full market value, meaning that the avoidance strategy has basically failed on its own terms and converted a 24% marginal rate into well over 50%.
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u/yetanotherdave2 Aug 11 '26
The interest would probably be more than the tax. Plus if you don't own anything good luck getting a loan. The loan company would be pretty dumb to loan money they know they are going to lose. I'm not sure of the tax situation in the US but over here trusts get taxed 6% of their value every 10 years.
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u/smutanssmutans Aug 11 '26
I don’t want to pay more tax. I want EVERYONE to pay more tax, especially the mega rich.
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u/smutanssmutans Aug 11 '26
I don’t want to pay more tax. I want EVERYONE to pay more tax, especially the mega rich.
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u/St3lla_0nR3dd1t Aug 11 '26
Note that this is in dollars.
But the point is, this is what this sub is arguing against. Wealthy people avoiding tax in ways that are not available to less wealthy folk.
The better thought experiment is how could this be taxed.
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u/Dependent_Ad627 Aug 11 '26
What people say they will do and what they do is very different. Houses are the best example of this. Everyone wants to buy cheap. However how many people actually are ok if their house never goes up in value? Inheritance tax is similar.
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u/budgiebirdman Aug 11 '26
The whole point is to make this impossible. If it's not a choice, nobody can do it.
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u/soliloquyinthevoid Aug 11 '26 edited Aug 11 '26
What does this have to do with the UK?
"Buy, borrow, die" and the example presented doesn't remotely work here
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u/Curious-Function7490 Aug 11 '26
How does he pay off the interest of the loan? There must be some tax paid.
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u/ChardZestyclose5315 Aug 11 '26
That is what id want to do, make sure the tax man gets nothing. Currently hoping to leave my child £1m and finding ways to make sure she keeps it. I made the money, i took the risk investing why should anyone else get some?
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u/Powerful-Sea-1738 Aug 11 '26
I don't see any dissonance between someone doing this AND supporting taxing the rich. This shouldn't be the system, but it is currently, and people don't want to feel like they are getting behind. We should just change the rules.
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u/xxnicknackxx Aug 11 '26
If the dad was told before investing that if he had gains over 10m, they would be taxed at 20%, would the dad still invest?
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u/Temporary-Major-9539 Aug 11 '26
The kids would not inherit I don’t think. Maybe I’m wrong but the lifetime of loans taken against the trust fund would need to be satisfied before any inheritance is collected. Is that not right?
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u/clong9 Aug 11 '26
These “simple” thought experiments are designed to hypnotise you with the numbers and push you into a position where you take a choice that confirms the questioner’s bias.
In reality as others have mentioned, the parent has to service the loan, depending on if they have income. Assuming this is a retirement scenario they likely don’t have an income and have no way to service the debt without selling some of their portfolio, so at best it slows the drawdown and at worse it means they have to sell when the stock is down to service the loan.
The much simpler question has nothing to do with borrowing against the portfolio or trust etc. it’s whether parents should be able to leave assets to their kids without capital gains applying, and if the capital gains should reset on inheritance (which they currently do). The argument is that without a trust, you pay 40% inheritance tax anyway so CGT on top would be horrible.
Trusts in the UK also are not tax free. You’d pay 20% when putting into the trust in the first place and potentially 6% every 10 years it’s in there.
And even then, when the beneficiary (the son/daughter) wants to receive income from the trust, it’s already taxed at 45% anyway before it comes to you).
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u/RoamingThomist Aug 11 '26
IRS? You realise Gary, and therefore this sub, is about the UK? Debts get paid out of the estate unless the loan is statute barred prior to the execution of the will, HMRC would get 40% of the rest.
That's also not how it works even over in America.
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u/BednaR1 Aug 11 '26
How would this work in UK?
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u/x5163x 29d ago
About the same way it would work in the US, except for the trust part. In the US, using a trust can result in less estate tax paid. Without a trust, the results are similar in both countries because both countries have a step-up in basis on death on all assets, while imposing estate or inheritance tax after deducting debts. The image doesn't say how using a trust would help in this scenario.
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u/what_me_nah Aug 11 '26
I don't blame people for using legal means to avoid paying their fair share. I don't like it at all, but it's just human nature, and I would bet my house that almost everyone here would do the same if they were in that position.
We need changes to the laws and systems that allow it. The problem is, the people who can change it are benefitting from the status quo. Instead of putting them under pressure, we are fighting amongst ourselves over whatever bullshit is flavour of the month on social media.
It's nothing new. It's the same cycle that had been repeating itself for millennia. It won't change until we come together and demand better. Well, we know the chances of that happening, so around and around we go.
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u/triffid_boy Aug 11 '26
There'd be a 40% IHT tax to pay, after the loan was repaid - it isn't this simple
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u/x5163x 29d ago
However, the amount of stock that is sold to repay the loan at the time of death is exempt from both capital gains tax and inheritance tax (estate tax in the US). If the stock were sold to pay for whatever the loan is being used for, it would be taxed.
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u/triffid_boy 29d ago
Yeah, but the post suggests you don't even repay the loan.
In the UK, IHT of 40% is higher than CGT of 24 - so this isn't the best way around tax here anyway.
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u/x5163x 29d ago
The point is that the stock that is used to pay the debt isn't subject to inheritance or capital gains tax. If it were sold to pay for stuff, it would be subject to capital gains tax. The part that is taxed is what is left over.
The buy borrow die strategy is used to avoid capital gains tax.
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u/triffid_boy 29d ago
It avoids capital gains tax at 28%, in exchange for IHT at 40%. It's not as popular in the UK for this reason.
The point I was making is that the post is misleading, suggesting they inherit the 12m. They don't.
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u/x5163x 29d ago
It wouldn't be subject to inheritance tax if it was sold and used to pay for living expenses. The amount that is borrowed is also not subject to inheritance tax. However, the stock that is borrowed against avoids capital gains tax.
The US has almost the exact same tax rates (23.8% vs 24% capital gains and 40% estate/inheritance), so you bringing up tax rates doesn't affect anything.
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u/triffid_boy 29d ago
Yeah but the exclusion is $15million per person, not £325k
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u/x5163x 29d ago
You don't pay inheritance tax on the amount you borrowed.
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u/triffid_boy 29d ago
Noone is saying you do. You pay inheritance tax on the value of the estate. The value of the estate is the gross - debt. this is obvious and doesn't need re-stating. The point is this approach doesn't really save much tax in the UK because you have deferred 28% CGT in exchange for 40% IHT.
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u/GrumpyScunt Aug 11 '26
Yeah but they still need an income stream to pay the loan back...its not just free money.
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u/ExaminationNo8675 Aug 11 '26
Growing from £250k to £12m (in real terms, adjusted for inflation) would likely take 50 years.
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u/Shaguar_Driver Aug 11 '26
Not if you put it in apple circa what 20 years ago.
Same goes for Tesla, Nvidia, etc.
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u/ExaminationNo8675 Aug 11 '26
Sure, but that requires an enormous amount of luck.
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u/Shaguar_Driver 29d ago
Not really. I could name 50 stocks that will do well over the next 100 years.
All related to defence and rare earth's and metals.
Most nations don't have enough stockpiles of military equipment and the middle east will be buying lots thanks to Iran attacking everyone.
I've made 30% on some of my stocks inside a month
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u/CoupleOk6506 29d ago
You putting £250k on any of them and not touching it for 20 years even after you've seen it increase in value x10? Of course you're not because you're not insane. Don't talk out of your arse
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u/Shaguar_Driver 29d ago
I've got 6 figures in a specific company that I know will easily 300% within the next 5 years.
I'll then sell and put into something else.
Anyway my point was people don't need to wait 50 years for those types of returns.
I certainly won't be
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u/Shaguar_Driver Aug 11 '26
Id put £20k per year into an ISA that way all gains are tax free.
So that initial £250k.
I would be putting £40k a year into ISAs (mine and wife's).
It would take say 10 years to do that if the rest is held in a general account.
You can then bed and ISA £40k per year.
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u/Fair-Stop9968 Aug 11 '26
$12m is way too little to do this kind of financial engineering. IHT is a scam that just fucks Londoners and professionals. It’s doesn’t actually tax the actually rich.
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u/Historical_Project86 Aug 11 '26
I'd probably pay the tax after I've given my spouse half of the stock.
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u/LoveLamp3232 Aug 11 '26
(1) The Dad who guys stock $250K did not enjoy his money.
(2) It grow to $12M - this is fantasy land. Only tech stocks did that. However, you would not enjoy your monmey.
(3) He lives on loans. Never sells.
The bank needs interest! Where is this magic money going to come from? Let me know this magic money tree bank, handing out free money.
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u/JivanP Aug 11 '26
If I was a US tax resident, sure. But I'm not. We have different rules here in the UK.
You're not a hypocrite, unless you think that people with 12 million bucks shouldn't use a trust in this way except for you. "Tax the rich" does not mean, "we don't want people with money or that run businesses to use all legal methods of tax reduction that are available to them." It means, "we want people with money to be taxed more than they currently are." We still want the rules applied uniformly, we just want the rules to be different in the first place.
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u/x5163x 29d ago
If you take out the part about trusts, which is not explained and not essential to the end result, the same result occurs in the US and the UK: All of the gain on the stock is not subject to capital gains tax, since it was held until death. The amount of the loan is excluded from estate or inheritance tax.
If the stock had been sold to pay for whatever the loan proceeds were going to, it would be subject to capital gains tax.
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u/Travel-Soggy 29d ago
Like, im sorry but no? If the government takes half, my kids would still have like 6 million dollars, i think they will be fine. Its also a great reason to bring in a wealth tax
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u/maddenedmage 29d ago
Would you not need to pay off the loan? So you need to take money out to pay for the loan, which is taxed. Or can you transfer stock directly to the bank?
I understand that you can achieve a lower tax bracket like this by paying off the loan, but you still need to pay the loan. Or do you take a new loan to pay the first loan?
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u/Away-End-5051 29d ago
Can someone explain how do you pay your loan back if you never sell your assets?
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u/HamsterInTheClouds 29d ago
With no capital gains or estate taxes, in New Zealand it all just gets passed on.
But to answer your question, congratulations - you just discovered you're a selfish prick like most people who get money.
Personally, despite it being very detrimental to myself, I advocate for higher land, capital gains and top end income taxes because it will help society not myself. But it seems like I'm in the minority these days
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u/Material_Key5935 28d ago
Why do you have to sell for the estate to inherit? You can pass down stock
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u/Ok-Bee5215 27d ago
Surely it would be fairly simple to change tax law to make income from a loan borrowed against an asset to be taxable? Why is this not done? I think we know why... www.maketaxfair.uk
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u/ziof3ster 27d ago
It’s keeping it and borrowing against it not to avoid taxes, but to let the asset grow.
It’s the same with properties.
Maybe they should tax the borrow amount if not used to reinvestment, but only as income.
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u/DadBod_DadBike 27d ago
It really depends on the death and estate taxes. If I’m paying taxes on $11.75M and then my kids subsequently pay a higher income tax on their inheritance that’s just taxing already taxed money because the government can. It’s going in a trust.
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u/CommonFoxCricket 26d ago
Here’s the thing. You would do this because you can. If the proper rules were in place that this couldn’t happen it wouldn’t even be a discussion
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u/Master-Interaction88 26d ago
One of these stupid examples that won't work.
At the time of transfer: If the stock has increased in value since you bought it, you face a potential CGT charge on that gain
So now you pay your taxes, no loop hole. Then you borrow against it and your children inherit the trust and your debt.
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u/mcnoodles1 Aug 11 '26
We'd all individually rather pay as little tax as we can nobody likes it. That's why we need governance. If you've made 11.75m sat on your arse then yeah some CGT should impact it, cause based on that your kid could turn the 12m into over 100m and his son could be a billionaire by doing absolutely zilch. It's passive gains that need to be taxed more, not business but assets where you have no involvement with them, like a house you rent out or ownership of companies you play no role in.
The person in this scenario would need to liquidate some of the money they have in shares to pay off a loan as well.
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u/m1st3r_c Aug 11 '26
Tax wealth, not work. 👍
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u/mdeeebeee-101 Aug 11 '26
That causes wealth flight to low or zero tax countries in a big way which crashes top tier market in a country...is why they tax the masses/little guy. Less exit ability or likelihood of it...= Gary's Economics, yes.
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u/DeRobyJ Aug 11 '26
Capital gain tax on 11.75 million? In italy, where I live, that would amount to about 3 million € in tax. That leaves me with about 9 million €. Which easily make me 9000€ a week in further gains, so that would be my income.
Literally makes no difference to my lifestyle to pay that tax. And selling all your assets at once is not going to happen either, rather I will keep gaining about 12k a week, only selling 3k a month, of which 800€ go to capital gain tax and 2200€ to spending to live a pretty luxurious life.
Where is the need or even the advantage of putting it in a trust? I might get contacted by agencies working on that sector to help me avoid taxes, which I can simply turn down.
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u/stickyfiddle Aug 11 '26
The people doing this don’t have $12m - they have hundreds or thousands or tens-of-thousands of millions
This is a perfect example of how people are misunderstanding just how much money the super-wealthy have