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

eskbanker

unitedwestand said:
The market is very jittery at the moment

Which market, and by what measure?

EthicsGradient

In reality, if we were advising a person in this situation (and we have to assume it's a person, not a couple or family, since that's all that's been suggested in the OP), the first question would probably be "do you own your own home, and if so, with what, if any, mortgage?". Paying off an existing mortgage, or buying a house for cash, is an effective way to get a "tax-free" return - you avoid an expense you might need taxable income to cover otherwise.

And real advice would almost certainly start "can you withdraw that resignation if we work out it's better if you do?". The winner might well decide that a nicer house and some money to keep it up is better than not working, but living frugally. Or that a different job, or working part-time, is the best thing for happiness.

redux

MX5huggy said:

Use the ISA allowance on S&S not Cash. 

Although it's tiresome for some people that capital gains tax allowance band is being reduced, I'd be thinking of putting higher income streams in the first 2 or 3 years' ISAs, then churning some capital gains in there later.

wmb194 said:

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.

On the other hand I didn't realise this about corporate bonds, so there may be some scope for researching a few well chosen ones rather than using a fund or investment trust vehicle in an ISA

I still think I'd do the ISA like that first though, then that is something to muse on over the next few months

Malthusian

For most lottery winners the biggest risk to a lottery win is not inflation or investment risk, but your peer group. (If we assume it isn't you yourself.)
And the first port of call to safeguard the money is to buy a reasonably priced villa in a nice hot country with a "golden visa" programme and a one-way plane ticket. (And of course a local English-speaking lawyer to ensure you don't get diddled in the act of foreign property purchase.) Leaving you out of reach of constant requests for money and "loans". 

born_again

unitedwestand said:

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? 

You missing out the bit where you buy new house, new car, treat family etc...

TheBanker

EthicsGradient said:

In reality, if we were advising a person in this situation (and we have to assume it's a person, not a couple or family, since that's all that's been suggested in the OP), the first question would probably be "do you own your own home, and if so, with what, if any, mortgage?". Paying off an existing mortgage, or buying a house for cash, is an effective way to get a "tax-free" return - you avoid an expense you might need taxable income to cover otherwise.

And real advice would almost certainly start "can you withdraw that resignation if we work out it's better if you do?". The winner might well decide that a nicer house and some money to keep it up is better than not working, but living frugally. Or that a different job, or working part-time, is the best thing for happiness.

That's why I said I wouldn't stop work immediately. I would if I won a bigger sum, but I'm in my early 40s and I am not sure £1m is enough to last for the rest of my life (assuming I'd like to gift some of it, have nice holidays etc). And I don't hate my job so have no immediate desire to quit. I may reduce my working hours though - after all the recent bank holidays I've become used to a four day week!

Truth is I wouldn't do anything immediately other than put the money in a range of instant access savings accounts to ensure FSCS cover. Then I'd spend a couple of months working out what I wanted from the rest of my life, and how I could achieve that. I'd probably seek out a good IFA to help me make my decisions. 

My priority would be to ensure I can support the lifestyle I want for the rest of my life, rather than minimising tax payable. 

Albermarle

The market is very jittery at the moment

They have been a lot more 'jittery' in the past, and no doubt will be at several points in the future.

steampowered

There are different types of risk. "Investment risk" is the risk of an investment going up and down in value. But also think about "Inflation Risk" - the risk of inflation eroding the capital over time.

A sensible investor would understand this and balance the different risks. For most people with £1 million that means a sensible portfolio of stocks and shares. Potentially also things like corporate bonds depending on risk appetite.

The approach described by Op does not really generate an income. 4% interest on savings accounts doesn't even keep up with inflation at the moment. If you are taking that interest and using it as your income, the value of your capital is being eroded year after year.

£1 million in 10 years time will be worth a lot less than £1 million today. So don't fool yourself into thinking this is capital preservation over the long term even if the numbers on your bank statement don't change.

Phrasing this another way: If you decide to put all of your wealth into savings accounts, that is "low" investment risk but it is "high" inflation risk. If you do that, your capital is going to be eroded over time. 

Prism

I would put it with the other millions I already have

unitedwestand

eskbanker said:

unitedwestand said:
The market is very jittery at the moment

Which market, and by what measure?

Equities/ Bonds. As long as you can fix above anticipated/ targeted inflation which you can just now and have your savings below the £85k protected limit cash is always the lowest risk investment to return. From Dec 21 to Oct 22 the s&p 500 fell 25% that's not low risk.