People obsess over tax rates, deductions, credits, residency tricks etc. That is small thinking. Forget all this bs if you are a serious businessman.
HNWIs do something else entirely: they stop earning taxable income. They live on loans.
How it works, step by step:
1. Build or own assets that appreciate. Typically shares of an operating company, a holding company, or a listed portfolio. The key variable is appreciation, not dividends, not salary.
2. Do not sell. Selling triggers capital gains. Capital gains trigger taxes.
3. Pledge the shares as collateral to a bank. Private banking desks do this every day. The bank lends you cash against the shares. Loan to value ratios usually sit between 30 and 60%, depending on volatility and liquidity.
What happens tax wise: nothing. Loans are not income. No income, no income tax.
You now live on borrowed money. House, lifestyle, investments, whatever. Still no taxable event.
Interests exist, obviously. Interest rates for secured loans are typically lower than unsecured credit and often lower than the effective tax rate you would have paid on realized income. Even better, in many jurisdictions interest is deductible or can be capitalized efficiently at the holding level.
If the business is good, the shares continue to appreciate while you are borrowing against them. If appreciation outpaces interest, your net worth grows while you spend tax free cash.
Over time you can refinance. New loan pays off the old loan. Still no income. Still no taxes. This can run for decades.
What about repayment?
At death, assets are often stepped up to market value in many legal systems. Capital gains evaporate. Heirs sell, repay loans, still minimal or zero tax.
This is how founders, shareholders, and serious investors operate. Bezos, Musk, Gates, Ellison etc. They are not paid salaries because salaries are for employees.
Of course this only works if you own appreciating assets. If your wealth is salary based, you are taxable cattle. If your wealth is asset based, you are negotiable collateral.
Risks exist and margin calls arrive if asset values crash. This is why concentration, volatility control, and conservative LtV matter.
The secret is not avoiding taxes. The secret is structuring your life so taxable income never appears.
HNWIs do something else entirely: they stop earning taxable income. They live on loans.
How it works, step by step:
1. Build or own assets that appreciate. Typically shares of an operating company, a holding company, or a listed portfolio. The key variable is appreciation, not dividends, not salary.
2. Do not sell. Selling triggers capital gains. Capital gains trigger taxes.
3. Pledge the shares as collateral to a bank. Private banking desks do this every day. The bank lends you cash against the shares. Loan to value ratios usually sit between 30 and 60%, depending on volatility and liquidity.
What happens tax wise: nothing. Loans are not income. No income, no income tax.
You now live on borrowed money. House, lifestyle, investments, whatever. Still no taxable event.
Interests exist, obviously. Interest rates for secured loans are typically lower than unsecured credit and often lower than the effective tax rate you would have paid on realized income. Even better, in many jurisdictions interest is deductible or can be capitalized efficiently at the holding level.
If the business is good, the shares continue to appreciate while you are borrowing against them. If appreciation outpaces interest, your net worth grows while you spend tax free cash.
Over time you can refinance. New loan pays off the old loan. Still no income. Still no taxes. This can run for decades.
What about repayment?
At death, assets are often stepped up to market value in many legal systems. Capital gains evaporate. Heirs sell, repay loans, still minimal or zero tax.
This is how founders, shareholders, and serious investors operate. Bezos, Musk, Gates, Ellison etc. They are not paid salaries because salaries are for employees.
Of course this only works if you own appreciating assets. If your wealth is salary based, you are taxable cattle. If your wealth is asset based, you are negotiable collateral.
Risks exist and margin calls arrive if asset values crash. This is why concentration, volatility control, and conservative LtV matter.
The secret is not avoiding taxes. The secret is structuring your life so taxable income never appears.
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