It’s a problem we’d all love to have – how to spend a tax-free £1 million windfall.
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The problem is unlikely to bother most of us, although many are surprised that the UK has 2.5 million millionaires, and the number rises by around 250,000 people a year.
That equates to 685 people a day finding a seven-figure sum has hit their bank accounts.
And the top 1 per cent richest households in the country sit on a wealth of at least £3.6 million each.
At the bottom end of the scale, the poorest 10 per cent are worth an average of £15,400, and half of them have more debt than assets.
According to the Office for National Statistics (ONS), the richest 10 per cent of households control 43 per cent of the nation’s wealth, while the poorest 50 per cent only hold 9 per cent.
Median household wealth is £302,500, but the figure drifts up or down depending on age and where someone lives.
Where Can You Get £1 Million?
Many paths lead to that £1 million pot of gold at the end of your rainbow.
Some make their money from business and investing, like Elon Musk, the Tesla car maker and SpaceX CEO, the world’s richest person with a fortune of $262 billion.
Others earn their millions in the movies or on the sporting field, while many more inherit or win their fortunes.
The National Lottery is responsible for minting 6,300 millionaires – many with winnings of multiple millions.
Winning luxury homes worth more than a million is a popular way to try and grab a fortune through operators like Omaze.
And there’s always trying to bank on your quiz knowledge for TV. The popular show Who Wants To Be A Millionaire? has created six millionaires over the years.
Ways Everyone Can Get Rich
If life seems to drag your finances down at every chance, don’t worry too much because you can take simple steps to improve your fortune.
Time is your greatest ally. Small financial sacrifices regularly repeated over a long time can add significant savings.
Uncontrolled spending is the first place to beef up your savings.
Look for cuts in two places:
- Stop spending small extra amounts on premium brands and bank the money instead.
- Don’t fork out on big purchases without justifying to yourself that you need the upgrade; for instance, a new car, TV or sofa are significant outlays
Don’t forget saving is a lifestyle choice, not a one-off. Stop drinking coffee and eating out, go to work on a bus or train and start walking instead of taking a cab. Over the years, these savings will mount up.
The best way to save is to spend according to a budget.
Once you start building a nest egg, start to look at retirement savings with a pension.
The government will top up your savings each year with tax credits. So, for every £80 saved as a basic rate taxpayer, the government will add £20 to your account. For higher rate taxpayers who pay tax at a 40 per cent rate, the deal is even better – a £40 top-up for every £60 saved.
Learn Basic Tax Rules
Tax is complicated for most people, but learning the basic rules can pay off.
Becoming a millionaire is about taking control of your money. If you don’t know the basics, you may miss claiming tax breaks that could add value to your savings and investments over the years.
What you need to look for are allowances, reliefs and deductions.
Allowances, like the personal income tax allowance, set out how much you can earn before paying income tax or as a basic rate taxpayer.
Reliefs are incentives offered to taxpayers to reduce the tax they pay.
Deductions are the cost of running a business or investments that reduce their taxable value.
In UK tax law, income tax, capital gains tax (CGT) and inheritance tax all come with reliefs, allowances and deductions that can reduce the amount of tax someone pays.
Buy A Home
Buying a home is easier said than done, but renters should make every effort to save for a deposit on a place of their own.
Homes bought 20 years ago have now at least doubled in value, giving the owners’ finances a considerable leg up towards that magic £1 million.
Remember, buying is also cheaper than renting a home and that any rent savings can improve your lifestyle or increase your savings.
Don’t Waste Money On Luxuries
It’s not a crime to spoil yourself with a luxury purchase now and then, but purchases like the top of the range cars lose their value quickly and cost more than an ordinary car to run.
The rule of thumb is a car loses between 15 and 20 per cent of value each year.
If you are a fan of bling and like a chunky gold bracelet, necklace or ring, consider if you need them or want to retire a little earlier.
Don’t Luck Out
The odds of winning a million from the lottery or a TV show are very slim. However, you have a better chance of earning real wealth from hard work and saving. So even if you fall short, you will probably be wealthier than if you hadn’t budgeted and saved.
How To Spend A £1 Million Windfall FAQ
What’s the chance of becoming a millionaire?
The chances of becoming a millionaire are more than a million to one. In the UK, 0.37 per cent of the 67.22 million population has a fortune of £1 million or more.
Who is the UK’s richest person?
The wealthiest person in the UK is Sir James Ratcliffe. He is the founder, chairman and majority shareholder of the Ineos energy group. He has a fortune of £13.04 billion, ranking him 113th on the global rich list.
Can I save £1 million in a pension?
Yes, you can save £1 million in a UK pension. The lifetime allowance, which is the total of anyone’s pension savings less the state pension, allows savings of £1.073 million. The fund includes your personal contributions, contributions from a third party and any tax top-ups.
Do people have £1 million in cash?
Most people spread their wealth across pensions and investments, like cryptocurrency, stocks and shares, property and other assets.
How much should I save?
The answer has got to be as much as you can, but most financial advisers would suggest 15 per cent of earnings is a good proportion.
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