Don't Fall For It: Why 'Borrow Until You Die' Doesn't Work

本站添加: 2026-05-31

[00:00:00]Why are so many financial channels on YouTube pushing a strategy called borrow until you die that real advisers never actually use with clients? Now, I'm a chartered financial planner advising clients on inheritance tax every single day and I've never once recommended it.

[00:00:19]So, in this video, I'm going to run you through the actual numbers behind this strategy and show you what we recommend instead that actually works. Now, the summary of how borrow until you die works is pretty simple. The idea is that wealthy people accumulate assets during their lives, so property, stocks, businesses, and rather than sell them and pay capital gains tax on the growth, they take out loans against these assets to fund their lifestyle instead. Now, because they haven't sold anything, there's no capital gains tax to pay.

[00:00:50]They just live on the borrowed money and the idea is that they just keep doing this perpetually and then when they die, the value of the debt gets set against the value of their assets and the theory goes that they end up paying less inheritance tax as a result. Now, this is nonsense and I'm about to show you exactly why. So, let's start on the inheritance tax point because this is the one that really gets me. The logic just doesn't hold up. Let's take two wealthy people, each with a million pounds in assets. Person one needs to spend 200,000 pounds. So, they sell 200,000 pounds of their assets and their estate is now worth 800,000. Person two has the same million pounds of assets, but they implement the borrow until you die strategy and they take out a loan of 200,000 pounds against their assets and they spend that instead. Their estate is now valued at 1 million pounds minus the 200,000 pound loan. So, the estate value hasn't changed. It's still 800,000 pounds. The value assessed for inheritance tax is identical.

[00:02:01]So, this financial engineering has done absolutely nothing to save inheritance tax. It just makes no sense.

[00:02:09]So, let's move on to the second supposed reason that wealthy people employ this strategy, that it saves them capital gains tax by not selling their assets.

[00:02:19]So, let's say our wealthy person has an asset valued at £1,000,000, which they purchased way back when for £100,000.

[00:02:28]So, it's sitting on a gain of £900,000.

[00:02:32]If they were to sell it, they'd need to pay capital gains tax, potentially at 24% on anything above the capital gains tax allowance. And that is a potential tax bill of £216,000.

[00:02:46]So, under the borrow until you die strategy, they could take out a £1,000,000 loan against their other assets instead. There's no sale, so there's no capital gains tax, and that sounds clever. Except the last time I checked, banks charge interest on loans, and even if you could borrow at the Bank of England base rate, which is currently 3.75%, borrowing £1,000,000 costs you 37,500 per year. And by the time you've paid interest for 6 years, you've spent more on the interest than the capital gains tax bill would have cost you. And at some point, the loan still has to be repaid. You're just going to be worse off. Now, I want to be clear what I'm talking about here. I am not talking about the use of debt as leverage to help a business to grow. So, I'm not talking about a buy-to-let landlord releasing equity from a property to put down the deposit on the next one. And there are high-risk trading strategies that use debt to try and enhance their returns. I'm not talking about those either. What I'm talking about is using debt specifically as a tax planning strategy to avoid capital gains tax and inheritance tax in the way that it's being marketed online. On that basis, it just doesn't hold up. And the same examples keep getting used in these videos. Elon Musk and Jeff Bezos, who each take almost no salary from their companies and instead take loans against the value of their stock in Tesla and Amazon to fund their lifestyle. Now, in both cases, I'm pretty sure that tax isn't the motivating factor. It's about not giving up shares and voting control in the businesses that they founded. And it's a completely different situation to your regular wealthy family planning their tax affairs on a global equity portfolio. So, what do wealthy families actually do to plan for inheritance tax?

[00:04:43]Well, what they're looking to do is structure the family's assets in a way that minimizes the value of the estate on death. And there are a handful of strategies that genuinely work. Here's a few of them. The first is making outright gifts to children, either cash or assets. If an asset is sitting on a capital gain, something called holdover relief can be claimed, which postpones the capital gains tax until the asset is eventually sold. The second is making gifts into trust. Now, this removes the asset from the estate. It starts a 7-year clock and crucially still allows the parent to retain control as trustees while they're still alive. And the third is making gifts out of surplus income.

[00:05:29]And this is an exemption that, if used correctly, means that large amounts can come out of your estate immediately with no 7-year clock required. So, these are the strategies that actually work, and not one of them involves borrowing a penny. And these are just three of them.

[00:05:46]There are plenty more, and I've done a video covering eight different strategies that you can use to tackle various parts of your inheritance tax liability.

[00:05:56]So, click here to watch that one next.