Ndubuisi 'Andy' Egwim shows how delaying taxes builds wealth. One investor pays 40% tax and invests £60,000; another invests £100,000 by deferring. He explains strategies like the US 1035 exchange and using trusts to avoid taxes on inherited assets.
40%.
The 1035 exchange.
Sh. You're getting like 100k in a year. HMRC charges you 40%. And then maybe the. On the other hand, someone else is not getting that same tax. So you have 60, 000 left at the end of the year. The other person has a hundred thousand. Next year you are investing your sixty thousand. I'm assuming you didn't take out any money. Next you invest 60,000. Guess what? I'm investing 100,000. Let's say the next year again, let's say 100,000. Let's just assume that we are both of equal ability and we are lucky and the money doubles. Your money go 60,000 to 120,000. Mine goes from 100,000 to 200,000. Guess what? Your money is 120,000. Guess who wants 40%? The tax man. And they're able to get 40% of 120,000 out. I don't want to do public math, but I believe that should be about 48,000. Is that correct? 48,000. That's 40% they're taking out. That's 12 by 4. 40% goes out again. So you're ending up with 120,000 minus 48,000, whatever that amount is. And that's the amount you've got to invest for the next year. Meanwhile, what do I have? I have my whole 200,000. So it's like you're on the back foot all the time. Let's do that. Over 20 years, you're going to be far away from where I am. Compounding is hard for the human brain to comprehend. That's why calculators are good. So that's why I want to pay my tax in the future. Not just because I need the money now, but I want to pay the tax if possible. If somebody says let me pay tax in the future. Even in the US they've got a special tax in real estate. They call it them the 1035 exchange. So you can buy a house rather. When you sell a house, rather than pay tax on it, you just use all the money from that house, buy a bigger house and then you don't pay any tax. You just keep deferring the tax. Maybe before you die, you might not have like an estate and then that's where you want to pay tax on it. That's when people then donate it to a trust and then never pay tax on it. But let's just keep it simple. If you pay tax in the future, that means the government is your daddy. The government is giving you part of the tax. They should have collected from now giving it to you to invest for your future. That's why we want to pay. Even the expansion you can pay in the end.
