Most tax efficient and low risk way to invest £1m today for an income

unitedwestand

Say you win £1m in the lotto and chuck your job. Now savings rates are higher what would the most tax efficient way to invest it for a return. 

To start off I was thinking. 
£20k in an cash ISA
£50k premium bonds

Open 5 savings accounts with £80k each and 1 with £40k (FCA protection) for a total of £440k with a target return of 3.99% p/a
This would give you £17,556 of interest.
Because you have no income I believe you would qualify for the starting savings rate of 0% for £5k plus still have a personal allowance of £12,570 so £17,570 total would be tax free.

Then you could try invest to make £1000 in dividends and £6000 in capital gains both of which are 0%.

If I'm correct/ this is possible at this point in the first year you've been able to invest £94,570 essentially tax free in year one.

There's also pension allowances/ backdated allowances however the aim would be for current income assuming not of pensionable age.

Next you could focus on dividend income which if you're not getting an income believe would only taxed at 8.75% at the basic rate after the £1k allowance.

I can't think of any other simple ideas for income that won't be taxed fairly significantly thereafter, any ideas? 

billy2shots

Generate more, pay some tax. 

Don't let the tax tail wag the dog. 

Max ISA

Max pension contributions 

Split the rest in GIA, fixed savings, PBs depending on risk tolerance, and emergency  fund needs. 

Pay a little in tax. The more tax you pay the better because  that means your investments are generating money. 

MX5huggy

Use the ISA allowance on S&S not Cash. 

wmb194

Gilts and "qualifying*" corporate bonds are exempt from CGT so buy those below par and hold them to maturity e.g., I don't know what it is now because prices have been (for gilts) volatile but there was a 2024 low yielding gilt that had a yield to maturity of c.4% and most of this was capital gain.

*You'll have a hard time finding one that doesn't.

TheBanker

It is nice to dream

I'd probably carry on working for a few years at least, and max out my salary sacrifice pension contributions. Some of my winnings would be used to replace the reduction in salary. I'd also pay off the mortgage.

On the rest, I'd just accept that I need to pay tax I think. Apart from ISAs there aren't a lot of options to minimise tax which don't also minimise returns. 

subjecttocontract

I'd love to have a big win, not for myself, I don't need it. But, I think the benefit that id get from giving it away, in terms of enjoyment & feeling good about myself, would outweigh any monetary return.

EthicsGradient

billy2shots said:

Generate more, pay some tax. 

Don't let the tax tail wag the dog. 

Max ISA

Max pension contributions 

Split the rest in GIA, fixed savings, PBs depending on risk tolerance, and emergency  fund needs. 

Pay a little in tax. The more tax you pay the better because  that means your investments are generating money. 

Though, since this winner has chucked in their job, the max pension contributions aren't all that big - £3,600 gross, or their 1st tax year's salary, if higher (so it depends on when they win. I guess). We just know the hypothetical winner is not yet at pension age - what an adviser would suggest would be highly age-dependent, I think.

I'd guess any Lotto winner would have the risk tolerance for PBs.

As far as the OP goes, "If I'm correct/ this is possible at this point in the first year you've been able to invest £94,570 essentially tax free in year one." looks like a calculation mixing up money invested/saved and interest/dividends received, and is a meaningless figure.

Millyonare

Slap it in a 10% dividend fund and bank £80k net per year.

eskbanker

Millyonare said:

Slap it in a 10% dividend fund

Which do you suggest that would deliver that reliably and sustainably?

dunstonh

Going cash heavy for income generation will be a high risk move in most periods.      While cash does not have investment risk, it does have inflation risk and shortfall risk.    Those two risks are greater with cash than they are with investments.

Personally, I would use the bucketing strategy for risk management

unitedwestand

MX5huggy said:

Use the ISA allowance on S&S not Cash. 

Sure but looking at low risk. Fixed savings rate are as high as almost 5%, the highest since 2009. The BOE inflation target is 2% and they reckon they'll be there within the year. The market is very jittery at the moment, higher returns more than 5% will need disproportionate higher risk.