High taxes aren’t great for those of us who save. UK taxpayers now shoulder the highest tax burden in the post-war period and part of that targets savers and investors who pay up to a maximum of 28% on capital gains or 39% on dividends. And with the biggest issue plaguing governments being how to raise more tax? Well, it seems harder than ever to build towards a passive income.
Safe accounts
But there is one bright spot in all this. One mooted plan to help plug the black hole in the country’s finances – by capping the Stocks and Shares ISA at £100k – seems to have fallen by the wayside. No minister has spoken of curbing ISAs since the election, despite serious tax-raising concerns, and I’m hopeful this is a sign that my ISA is safe.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
The criticism of the Stocks and Shares ISA revolves mainly around it being too generous. At a £20k yearly deposit limit, I can hardly argue with that. But such a high limit does help smaller savers too.
A windfall from inheritance or the like? Bung twenty grand into the ISA at once. Inflation running high? The high deposit limit has a protective effect against the effects of fiscal drag. Even those starting with nothing and who can only put away £100 a month could build a nest egg of over £200k.
Where to start? Artificial intelligence wouldn’t be an awful place. A saver beginning today and armed with a little knowledge might wonder how to profit from an upcoming AI revolution. Well, one of the more exciting British participants is RELX (LSE: REL), a data analytics company.
Transformative
One of its biggest segments is a Legal division, which offers products to help lawyers sift through mountains of dense legalese quickly and easily. The firm has already released Lexis+AI, an “AI legal assistant”.
If AI does have the transformative effect that many are claiming then RELX might be one of those stocks that transforms too. Indeed, the shares have already doubled in the last three years.
There are dangers to any stock too. One of the reasons I don’t currently hold it is that its products are aimed at lawyers, doctors and academics, not fields I have experience in.
Of course, the best of all is that the money is snowballing higher thanks to compound interest without taxes taking the edge off the returns.
A 30-year investing period with 9% returns would turn £100 a month into a £207,929. At that point, it would be time to think about withdrawing a passive income through dividends or selling stocks and, because I remembered to do it all in my ISA, that would be tax-free too.
The post Starting with £0? Here’s how I’d try and turn £100 a month into a passive income nest egg appeared first on The Motley Fool UK.
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More reading
If I’d invested £20k in a Stocks and Shares ISA 10 years ago, here’s how much I’d have now
John Fieldsend has no position in any of the shares mentioned. The Motley Fool UK has recommended RELX. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
