I will try to keep it short I’m currently a Swiss resident, but I don’t know how many years I will stay here. Currently I assume it won’t be more than 10 years, but could be much less as well - if I lose my current job for whatever reason, most likely I would return to my home country.
And now - I wonder how the above assumption should (if at all) impact my investing strategy. I don’t want to start discussion about portfolio components, CH vs home country bias etc., as each of these could be a separate post, but I want to focus exclusively on the choice of ETFs.
Some facts for the context:
my home country is the EU one, so I would be affected by the PRIIPs regulation
there’s no estate tax treaty with US
all capital gains like shares sale (so only the actual profit, not the whole amount), interest, dividends etc. are taxed at 19%…
…but if you sell some assets at a loss, you can deduct such loss from a potential shares sale profit in the next 5 years to lower the taxed amount
WHT is 15% and can be deducted from a local tax (like in CH)
If I use some robo-advisor like finpension or VIAC Invest, the situation is clear - when I move abroad I’m forced to sell all my shares and close the account.
But with Interactive Brokers it is different - I have just confirmed I would be able to transfer both US and CH shares to a new IKBR account (which is needed because of a different legal entity). Ofc I wouldn’t be able to buy US ETFs anymore, only sell the already owned ones.
In theory the approach could be simple - “VT and chill” as long as possible, don’t sell anything, when I relocate - simply start buying IE ETFs. But there are two additional factors:
If I hold VT worth more than $60,000, I risk being affected by the estate tax (I don’t plan to die soon, but well)
If shares value just before relocation is higher than purchase price, it could be worth to sell them when still being a Swiss resident to avoid capital gains tax in a new country, e.g.:
purchase price: X, shares value: 1.2 * X, sale in Switzerland: no tax
purchase price: X, shares value: 1.2 * X, sale in a new country: 19% * 0.2 * X = 0.038 * X
In that case, after selling assets in CH, I would buy the new ETFs just after relocation, but the purchase price would be higher, so the tax on gains in the future would be lower (because of lower profit). Ofc I wouldn’t be able to buy new US ETFs again, so it means the complete removal of such assets from my portfolio
If shares value just before relocation is lower than purchase price, there’s no reason to sell shares in terms of tax optimisation (actually it’s the opposite - it’s worth to keep them as I could deduct higher loss if forced to sell them when the value is still down)
So generally the potential scenarios looks like:
I just buy VT and don’t care, sell all of them (or the amount needed to fit under $60,000, but then I have to control the value in the future) in a moment I have a wife / children and start treating the estate tax seriously
I buy VT, but sell them just before relocation if there’s any profit to optimise taxes in a new country
I don’t buy US ETFs at all, I invest into IE ETFs from the very beginning
So the main question is - would you play with US ETFs at all if you have in mind that you could need / want to sell them in less than 10 years? Do you think it’s still worth it even in such short time horizon because of a VT performance & much lower TER in comparison to IE ETFs?
Also, do you find the idea of selling the assets because of tax optimisation before moving abroad a valid approach or rather recommend to just keep them as long as possible (and as long as I don’t get crazy about the estate tax) as I won’t be able to buy US ETFs anymore (unless regulations in the EU change in the future)?
This is confirmed by IBKR, I guess? I heard at some point if an PRIIP-like regulation came into effect in Switzerland, current holders of a US ETF could still increase their positions. No clue where I heard it, probably fake news…
To answer your actual question, I don’t see a downside to buying US ETFs while you can. Why take the TER hit now if you can put it off? I’d buy VT now and sell it just before moving for the tax benefits, or hold on to $60k-worth if you can.
This would be a standard/recommended approach to reset your tax basis when moving out of Switzerland to a country with capital gains tax.
Given this, I’d optimize for your current situation instead of some hypothetical future, and when you move out you’ll revisit (as you mention who knows, maybe you decide to stay, or move to a different country, etc.)
That’s correct for Switzerland, changing existing position and execution only is allowed. For EU, I think you can only sell them (and use the getting share assigned with options workaround to get more).
This is confirmed by IBKR, I guess? I heard at some point if an PRIIP-like regulation came into effect in Switzerland, current holders of a US ETF could still increase their positions. No clue where I heard it, probably fake news…
Yep, it was confirmed I won’t be forced to sell immediately, I would be able to keep it, but unfortunately not able to increase the position
To answer your actual question, I don’t see a downside to buying US ETFs while you can. Why take the TER hit now if you can put it off? I’d buy VT now and sell it just before moving for the tax benefits, or hold on to $60k-worth if you can.
That was my initial idea as well, I just wanted to double-check if I don’t miss any potential downsides of such “ETF flip” in a relatively short time window. Thanks for your reply!
Given this, I’d optimize for your current situation instead of some hypothetical future, and when you move out you’ll revisit (as you mention who knows, maybe you decide to stay, or move to a different country, etc.)
I try to keep that mindset, but as I have just mentioned above - I wanted to ensure I don’t miss any important factor which could affect the chosen strategy
This would be a standard/recommended approach to reset your tax basis when moving out of Switzerland to a country with capital gains tax.
Great post indeed, as I was also considering finpension / VIAC for a moment, but finally concluded it’s just not worth the additional costs (although still great services for the ones who don’t want to think about investing too much)
Actually that’s my estimate for the tax loss when using UCITS vs US ETF for global stocks
Assumptions
US account for 60% of global stocks
Dividend yield of US stock market is 1.5%
15% of WHT is lost
Marginal tax rate 30%. So only 70% of lost money is actually lost for investor
1.5% * 60% * 15% *(100%-30%) =0,0945%
3 Likes
By reading and partipating to this forum, you confirm you have read and agree with the disclaimer presented on http://www.mustachianpost.com/
En lisant et participant à ce forum, tu confirmes avoir lu et être d'accord avec l'avis de dégagement de responsabilité présenté sur http://www.mustachianpost.com/fr/
Durch das Lesen und die Teilnahme an diesem Forum bestätigst du, dass du den auf http://www.mustachianpost.com/de/ dargestellten Haftungsausschluss gelesen hast und damit einverstanden bist.
I’m currently a Swiss resident, but I don’t know how many years I will stay here. Currently I assume it won’t be more than 10 years, but could be much less as well - if I lose my current job for whatever reason, most likely I would return to my home country.