I’ve lost everything through a cyber theft

This post is a response to @SavingNinja’s Thought Experiment #4.

@SavingNinja poses the following challenge, and asks for a ‘stream of consciousness’ reply:

You wake up one rainy morning and after checking on your accounts you find out that you’ve been ‘wiped-out’ by a cybercriminal. You’ve lost all of the money and assets that you’ve ever owned and you can’t get them back. What will you do?

Thought Experiment #4 by @SavingNinja

My first reaction is to clarify exactly what I have lost. I don’t accept the premise that I have lost all the money/assets I’ve ever owned; for starters, I’ve spent some of those! So for purposes of this discussion I’ve lost all the assets that can be retrieved via online / written instructions to banks/brokers/etc.

This loss is catastrophically bad for me. It amounts to:

  • £100k+ of cash in various accounts
  • £millions of publicly quoted investments in my own numerous brokerage accounts
  • £00ks of assets in Mrs FvL’s accounts and brokerages that I have access to

SavingNinja tells me I can’t get them back. I am not going to take that at face value and am going to find a very competent lawyer, agree a performance-related fee structure, and send them hard at everybody that moves. I am going to consider going public with my predicament and creating an almighty fuss that my banks, brokers, etc will find embarassing at least. But, for the sake of argument, SavingNinja proves right and I can’t retrieve more than, say a few £000s of goodwill gestures.

I do however have a few remaining assets.

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Declaration of financial independence?

Over the new year break I found myself really enjoying the blog post by {indeedably} in which he breaks down his assets and income.

He has an unusual way of looking at his state of financial dependence, as shown by his image below:

i-own-buying-control-of-my-time-e1535807204287

His core point is that his level of financial independence depends on

  1. the amount of his expenses – some of which are ‘wants’ rather than ‘needs’,
  2. the level of investment income he can expect and
  3. how much ‘time he wants to sell’ (i.e. paid work he wants to do). He isn’t fully independent, but only ‘sells’ about half his time.

One thing that shows up clearly in {indeedably}’s graph is that investing can be expensive. In his case, a significant portion of his assets are property, and as a result his investing expenses appear to include a) mortgage costs b) property management and c) property maintenance – among other things.  I think they will also include his investment fund expenses/fees too.

Putting on {indeedably}’s glasses

I spent a few hours bashing my expense tracking data into a similar format to {indeedably} and now can view my cashflows on a broadly comparable basis.

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Avoiding tax in the UK

I was asked to help a friend of mine, a (~50 year old) widow, complete her UK tax return recently. In the UK the final deadline for filling in your own tax return is 31 January, and the process these days can all be done online via the taxman’s excellent website. Her finances were illuminating.

What is a rich widow?

This widow’s income is roughly as follows:

  • £45k of earnings. She is a freelance creative.
  • £25k of investment income, about half of which was taxable (‘unsheltered’). She has about £700k of investments, roughly half in tax-free accounts (ISAs/SIPPs), and half unsheltered. She has no other income-generating assets.
  • £10k of contribution to her pension. She is a (non-executive) company director of her ex-husband’s company which doesn’t pay her but does make £10k per year payment into her SIPP.
  • £12k of (realised) capital gains last year, all in unsheltered accounts .

This lady’s total income/gains last tax year amounted to over £90k. This puts her in the top 10% of the UK by income, but not the top 5%.

But how much does an ‘average striver’ pay in tax?

Now, before we continue with my widow friend, let’s have a think about ‘average Joanna’, a typical striver in the UK.

Consider Joanna, a (hypothetical) 50 year old who works full-time for the NHS, earning £45k (roughly the London average wage). For a like-for-like comparison, her pension (contribution, from her employer) and (NHS pension investment equivalent) income on top of this would add about £25k to her taxable income, all tax-free.

Joanna pays £6.6k of tax, and £4.4k of national insurance, totalling £11k of tax/NI. This works out as 24% of total gross pay.

How much tax does this ‘rich widow’ making £90k pay?

“the art of taxation consists in so plucking the bird as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.” – Colbert, paraphrased

What total tax/social charges (National Insurance, in the UK) do you think she owes on her annual income/gains?

Before continuing reading, think of a number.

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