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)
What have you decided? As I am kinda in the same position, I am also thinking how this should impact my investing strategy.
Like you, I also invest into US ETFs, but the last few days I am considering to change my strategy based on the fact that I would move back to my EU home country in about 5 years.
@Adonix I follow the recommendation and don’t worry about it too much as for now, when I leave Switzerland - I would do some calculations whether to sell US ETFs to reset my tax basis or just keep what I have and start buying the IE ones
There’s no real problem. If you move overseas then sell the shares in profit before leaving to get tax free gains.
Then if the US assets are at a loss, sell them in the new country to generate the capital loss and re-invest into other assets if you are worried about the $60k estate tax.
I need to activate this topic because I’m in a very similar situation
Me and wife - both started living in Switzerland and became Swiss tax residents, and we are Turkish nationals.
Before moving to Switzerland, we had a joint IBKR account open mainly invested in VTI, VXUS and BND. And we still have this account with same composition and our IBKR account is based in US entity. I’m reading via IBKR, and it says I don’t have to change our accounts legal entity because we moved to Switzerland, I hope I’m reading this right.
What I’m trying to avoid here and making research is estate tax, if one of us passes - it seems the other will need to pay US estate tax for investments about 60.000$. Even though our account type is Joint Tenants with Rights of Survivorship (JTWROS), (If I understand correctly, one of us will pay estate tax over the other’s share). This - I find conflicting information on Swiss part, swiss residents can also benefit on tax treaty or not. But still, I don’t want my wife filing things and dealing with IRS for inheritence.
At the same time, of course I want to keep investing in our VTI/VXUS/BND portfolio. Obviously we make CHF, and in theory I will be sending CHF to IBKR, converting to USD and buying above ETFs.
I’m kind of stuck on the decision. I’m currently thinking to leave 60k$ in our current account, opening a new broker account in - swissquote for example - and keep investing in IE domiciled equievelents of VTI/VXUS - and sell everything before moving to a country which has capital gains tax. What would you do? I kind of want a hassle free investment process, easier tax filing and no inheritence tax risk and I don’t mind slightly higher fees. Buying IE ETFs via swissquote makes sense with this expectation?
Are you sure you want unhedged USD bonds? I don’t know what country you will retire in but for people staying in Switzerland I would certainly not recommend unhedged foreign currency bonds.
You definitely need to inform IBKR of your new tax residence. IBKR might let you keep your US account but I’m not sure what the current situation is. However, also moving to IBKR UK (the normal IBKR subsidiary for Swiss residents) shouldn’t really be an issue.
Swiss residents can benefit from the tax treaty, however, it does indeed require dealing with the IRS if you have more than $60k in US situs assets.
For a global stock investment such as VT or a reasonable combination of VTI and VXUS, the trading currency of the funds doesn’t affect the performance, assuming the currency conversion has low fees, as is the case with IBKR. For bonds, see my comment above.
Keeping US situs assets below $60k can make sense to avoid heirs having to deal with the IRS. The broker domicile doesn’t matter for this, though. You can buy IE ETFs at IBKR and they would not be affected by the US estate tax.
If you want a Swiss broker to get a Swiss tax report, Saxo is currently the cheapest option. If you want Swissquote, I consider their fees acceptable only if you hold more than CHF 400k there and you limit transactions (after initial investment) to a single trade per month, always in CHF, preferably one of the so-called ETF leaders.
However, if you’re willing to pay more to be able to get a Swiss tax report, I don’t think it makes sense to keep your IBKR account at all. I.e., I would either buy IE ETFs at IBKR or completely move to Saxo - unless you actually want two brokers for diversity but then limiting IBKR to $60k doesn’t make sense long term when your total investments reach a multiple of that.
Indeed I informed IBKR already, regarding our tqx residence change. But I think I will keep US entity unless they ask me otherwise, I guess there is no difference for my situation - right?
@jay - Thanks again for all the details. In that case - if I don’t mind tax filing convenience, for you the best solution is; Keeping same joint IBKR account and buying UCITS ETFs, right? (This wil help us avoid estate tax documentation) If I go for this, I will probably sell current holdings and fully go with UCITS ETFs since we don’t have to pay capital gains tax. Regarding bonds, I think I can live without bonds in our portfolio and hedge the risk with some cash, and switch to stocks (VTI/VXUS 80/20 etc) fully since we will sell all portfolio before moving out from Switzerland anyway.
Depending on your risk capacity and tolerance, this may be reasonable.
However, I don’t understand the last part. The decision whether to invest in bonds or not (strategic asset allocation) should be completely independent of whether you will sell your investments before moving out of Switzerland.
@jay Sorry I was not clear. I meant that I can buy them closer to retirement. We are 37-38 years old, and we will probably leave Switzerland in 10-15 years, I can start adding bonds at a later stage or buy bonds and / or dividend ETFs on “second investment round” let’s say.
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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.