How the wealthy use old systems to avoid tax and build wealth

The financial system often seems to favour those who already have money, because of various structures that make it hard for ordinary people to build wealth.

Certified financial planner Paul Roelofse says the wealthy elite create structures that allow them to invest in assets, borrow against them, and minimise tax liabilities.

This system, dating back to the 1920s, enables the wealthy to live off the growth of their investment without paying capital gains tax.

“They invest in assets that grow, such as shares and property, then they knock on the door of the bank. They don’t want to sell their shares, because then they’ve got to pay capital gains on it, but lend money against their shares, and the bank is happy to do that.”

Roelofse explains that when the wealthy die, their estates benefit from a ‘step-up’ principle, whereby the value of their assets is reassessed at market value, eliminating capital gains tax.

This is not available to the average person who is subject to progressive tax and capital gains tax.

“You are living on a very tax-efficient, tax-avoidance mechanism – which other people in the rest of the world don’t get to enjoy,” says Roelofse.

He emphasises that the key takeaway is not to envy the wealthy, but to learn from their strategies.

Avoid debt, which robs you of your financial independence, and instead focus on earning interest rather than paying it.

To listen to Roelofse in conversation with 702’s John Perlman, click the audio player below: