10 year plan, suggestions

pantsmachine

Evening all,

I am currently 38 years old and paid off my house at the start of the year. I am currently setting my mind towards the next goal which will strech me a bit, the goal is a 10 year 1/2 million plan. I am in a position where i can save £1,500 to £2,000 per month and once per year a £20,000 lump sum. If no disasters happen and i keep on track i plan to walk away from the offshore industry in 10 years hopefully with 1/2 million in the bank,my house,pension and a smile on my face. i totted up some figures and this seems do-able averaging aronud 5 to 6% percent per year starting from zero now. Sadly this drops when i account for the taxman taking a chunk. Any suggestion for tax avoidance or investment paths? Thanks very much in advance for any advice given.

dunstonh

Any suggestion for tax avoidance or investment paths?

Are you a UK resident?

You could consider offshore bonds (although thats more lump sum based than regular but could save you a lot in tax as well as benefiting from gross roll up. If you are UK resident, then you have ISAs. There are also low yielding unit trusts or zero yield investment trusts. National savings certificates.

McSaver

If you paid this all into Icesave for the next 10 years.

Based on £1,500 a month and £20,000 a year. You will have approxiamtely £482,000 at the end of it, (normal 20% tax rate) After Tax deductions are imposed.

If your higher rate tax (40%) then it will be £454,000.

You could always use an ISA to reduce the amount of Interest is taken off.

tipsychick

There was an interesting article in The Times a few weeks back on this sort of topic:

http://business.timesonline.co.uk/tol/business/money/tax/article2158071.ece

Certainly food for thought!

isofa

tipsychick wrote: »

There was an interesting article in The Times a few weeks back on this sort of topic:
http://business.timesonline.co.uk/tol/business/money/tax/article2158071.ece
Certainly food for thought!

Thanks for the link, read this in the Sunday Times Money section a few weeks ago, nice to see a web based copy, some good tips for maximising tax free allowances, even if most of us can't save anything like the amount per year shown!

pantsmachine

Yes i am a uk resident, good article in the times, i will digest it and look into the various options in the article.

dunstonh

The article has flaws. VCTs/EIS are high risk experienced investor products and it didnt mention offshore bonds.

pantsmachine

Thanks dunstonh, i will bear that in mind when i commit to a plan. What are the advantages to offshore bonds, is this a tax avoidance thing?

dunstonh

offshore bonds "can" be beneficial. There are some negatives and there are positives. The positives are best aimed at those that are higher rate taxpayers now but will be basic rate in future years or those that could have unused personal allowances later on. You can defer the tax liaiblity until you pay less tax. i.e. a higher rate taxpayer can use an offshore bond and pay not tax on it. It isnt tax free as tax comes later. However, they wait say 15 years until they are a basic rate taxpayer then over the following years, they take segments of the bond to use up usused personal allowance and only be charged basic rate on the rest. They would also have benefited from gross roll up on the money (gross income on gross income over the years). The gains are not as good as they once could be but for those that will have low incomes (now or future) but large capital could save an awful lot of tax.

The negatives are that it is a long term plan. Partial encashments (above 5%) in the early years are treated as full gains and the tax could be massive. So, you have to plan well and calculate your allowances each time as to when its best and how much to do. Not a problem if you have the time or get someone to do it but its more work than say a national savings certificate or ISA.

pantsmachine

Well i did ask! Almost understood it, steep learning curve dead ahead Captain....

Dithering_Dad

Whatever method you use to make your half million (or become a "Dollar Millionaire", which I think sounds much cooler), please make sure to post regular updates into this thread. Once I've finished my Mortgage Free in Three (Yrs) campaign, I'll be keen to move onto the next one and "Dollar Millionaire in Months (120)" sounds like a catchy title...