Why HMRC Doesn’t Want You to Understand This

[0:00]Right, if you were to go to your banking app right now and take a look at what hit your account last payday. And then you compare that to what you actually earned before deductions, you'd probably see a big gap. Now for most people earning between 50 and 100 grand in this country, you're working from January through to May, that's a full five months exclusively for HMRC, the taxman. But the wealthiest people in this country, they don't do this. They use a strategy that is completely legal and yet almost nobody with normal income has ever heard of it. It's simply called buy, borrow, die. So I'm going to help you understand exactly how it works, why the system is generally rigged, and what you can actually start doing about it. So let's begin with why you're probably losing, because if you earn a salary in this country, the tax system is very much pointed at you. Income tax, national insurance, student loan repayments, it all comes off before you see a penny. And the rates are fairly brutal once you get past the basic thresholds. Earn over 50,000 and you're paying 40% income tax, over 125,000, that's 45%. And national insurance on top of that, we're talking effective rates pushing past 50% for certain income brackets. Now, in real terms, if you earn 80 grand a year, which by the way, puts you in the top 5% of earners in the UK, you're taking home roughly 54,000 after tax and national insurance. That's 26,000 pounds gone every year, and that's, you know, a decent deposit, let's say, on a flat in most places in the country. And people earning 10, 20 times that, they're often paying a lower effective rate than what you probably are, and it's not because they're doing anything illegal. It's because they're simply not earning their money as a salary. The distinction matters more than almost anything else in the tax system. Now on top of that, there's something else going on that doesn't get all the attention, and it's probably costing you more than any actual tax rise would. And that's called fiscal drag. So, tax thresholds, the amounts that you can earn before you hit that next tax bracket, have been frozen since 2021, and they're staying frozen until at least 2028. Now that's seven years, but inflation hasn't been frozen. So your wages have gone up a bit.

[2:37]The cost of everything else though has also gone up, so each year a little more of your income creeps over that kind of next threshold bracket, and even your actual spending power though is not really improving. Now, the Office for Budget Responsibility estimated that this will pull over 4 million extra people into higher band tax brackets by 2028. That's 4 million people paying more tax without a single rate actually changing. Now the government just freezes the thresholds and then behind closed doors, inflation is quietly doing the work for them. It's clever if you are part of the treasury, it's less clever if you're a teacher who just got a cost of living pay rise and half of it's been swallowed by the bracket that you weren't in last year. So let's follow the life of a single pound that you earn because when you see the full picture laid out, it's actually quite something. So you earn it, you have income tax and national insurance come off straight away. You're down to about 60 pence, you then spend it, that takes 20% of that on most purchases. So now that 60 pence is buying you about 48 pence worth of stuff. You put fuel in the car, there's fuel duty, then VAT charged on top of duty, so you're paying tax on tax. And that's not an exaggeration, that's literally how it's structured. Now, you save up, you buy a house, stamp duty, thousands just for the privilege of completing a purchase. You sell an investment property down the line, there's capital gains tax on that, and then you die. And even then you're not finished. Inheritance tax takes 40% of your estate above the threshold on money that you've already been taxed on every single stage of your life. That pound you earned, by the time it's been through the system, across a lifetime, the government's taken 70, 80, sometimes 90 pence of it. And nobody ever shows you that full journey, because that's the reality of the UK tax system. It compounds against people who earn and spend normally. Okay, so that's the game if you're playing by the standard rules. Now let me show you what the wealthy are actually doing, because it's surprisingly straightforward once you break it down. There are essentially three things that they do very differently. The first thing, they don't take big salaries. Most wealthy business owners pay themselves the bare minimum. Often around their personal allowance, 12,500 and 70 below the threshold. So there's no income tax, their company might turn over millions but their personal income on paper is almost nothing. Second, they put money into assets rather than pulling it out. Instead of extracting cash from a business and getting taxed on it, they use that money, or more often, borrow money to buy things and then they grow up in value. Property, equities, other businesses, things that grow whilst they do nothing. And the third thing is, and this is an important one, they don't sell. The moment you sell an asset, you've created a tax bill event, capital gains kicks in, so instead of selling, they borrow against the asset's value. They access the wealth without triggering any tax at all. So none of this is particularly complex, the principles are simple and they're just not part of the conversation most people are having about money. And that gap in awareness is really where the divide between the wealthy and everyone else begins. So let's put this all together properly. You buy, you borrow, you die, the three stages. Stage one, you buy. You acquire assets that appreciate over time. Property is the classic, you know, UK example, but it could be shares, it could be commercial, it could be any type of real estate, a business, typically you're buying with leverage, a mortgage, a loan. You're using the bank's money to control an asset and you're not liquidating your own capital. Now stage two is to borrow. This is where the whole thing comes together. As your assets increase in value, you borrow against that growth. That is refinancing and the critical point, and something I'm going to be very clear on is, the loan is not income. You do not pay income tax on borrowed money. Now let me walk you through a real example. You buy a property for 200,000 with 150,000 mortgage. Over the next 10 years, that property rises to 400,000. You then refinance at 75% of the new value. That gives you a new mortgage of 300,000. You pay off the original 150 and you've just released 150,000 pounds into your hand. There's no sale, there's no capital gains event, there's no income tax because it's debt, it's not income. Now, if you take that 150,000 and do it again, you buy another asset, let it appreciate, you refinance, you repeat. Each cycle in that pot then gets bigger. The tax bill stays zero. Now stage three is die. When, and this is quite blunt, but that part comes to all of us. The strategy comes together, when you die, your assets pass to your heirs, the debt attached to those assets reduces that asset's value for inheritance tax purposes. And with proper structuring trusts, family investment companies, business property relief, the tax on that transfer can be significantly reduced. And in some cases, removed entirely. So you spent your life accessing the wealth from these assets through borrowing, you've never sold, you've never triggered any capital gains and the assets transfer to a structure that minimizes inheritance tax.

[8:29]That's the strategy. It's relatively simple and it's completely within the law. Now, this isn't theory, this is standard practice for a lot of wealthy individuals and examples are really well documented. You know, when Elon Musk bought Twitter, he didn't sell his Tesla shares, selling would have triggered a massive capital gains bill. Instead, he borrowed against his Tesla holdings, billions in loans secured against stock, he never sold. Tax on those loans? It's nothing. There's Jeff Bezos, who, you know, ran Amazon for years, paying himself a salary about 80,000, while being worth over 100 billion. His wealth was in shares, when he needed cash, he borrowed against them. And slightly closer to home, Adele, now worth over 200 million, when she bought a 50 million pound house, she took out a mortgage. She could have paid in cash, but paying cash means liquidating assets, which triggers capital gains. A mortgage cost you a few percent in interest, selling assets could cost you 20 or 40% in CGT. Now the math isn't complicated there. Now, obviously, you and I aren't in the market for a 50 million pound house, but the principle works at every level. A landlord with two properties in Leeds is running the same fundamental strategy as Elon Musk. Buy an asset, let it grow, borrow against the growth, don't sell. The numbers are different, but the mechanics are identical. So the obvious question is, how does a normal person start applying any of this? Now the first thing, it might be quite obvious, but if you're running a business or self-employed, you probably might need a specialist accountant, not a generalist who does a bit of everything. Someone who actually understands extraction strategies, structuring, tax planning on a level that makes that material difference. The gap between an average accountant and a good one can be tens of thousands a year. That's obvious because the people at the top only all that money, you know, they're using very specialist qualified professionals there. Now, that's just the fact of it. The second thing is, start thinking in assets rather than income. Every financial decision should go through a simple filter. Does this pay you once or does this build something that keeps growing? A salary pays you once, an asset compounds. Now the third thing is, separate good debt from bad debt in your head. Now, consumer debt, credit cards, car finance, buy now, pay later, get rid of that. But debt attached to it, appreciating asset where someone else is servicing the repayment, like a tenant carrying your mortgage, that's a different thing entirely. That's not a liability, that's actually more of a tool. And fourth, you can start this now because it doesn't matter whether you're 22 or 52. Understanding how wealth is actually built is something that most people never get around to. The fact that you're watching this video puts you ahead probably of the vast majority. Now, I just want to finish with something that I think needs saying quite plainly. The UK tax system isn't broken, it's working exactly the way it was designed to. It was designed to tax labor, to tax salaries, to tax people who trade their time for money. And it does that extremely efficiently. What it doesn't do by design is tax wealth in the same way. The wealthy buy assets, borrow against them and pass them on. They don't sell, they don't create taxable events. They're not bending the rules, they're using the rules as they exist. Now, I'm not telling you to dodge tax. I pay my taxes, I'm happy to contribute to the NHS, to schools, to things that we all rely on. What I'm saying is, don't pay more than you're legally required to, because the people with the most money in this country, they certainly don't. So, buy, borrow, and die isn't just a strategy, it's a way of thinking about money that most people are never exposed to. And once you understand it, a lot of the things around how this system works start to make more sense. Now if you found this useful, please do subscribe. We put out videos regularly and if you're a business owner or self-employed and you think you might need an accountant, the link's in the description. Thank you very much for watching and I'll see you in the next one.