Risk of being reclassified as a professional securities trader when financing investments with a private loan?

[PeterKunz]

Hi everyone,

I’m thinking about taking out a private loan and investing the proceeds via IBKR into ETFs and stocks.

My situation:

• The annual dividends from my entire portfolio (including all existing positions) are slightly higher than the annual interest cost of the loan.

• I do not breach any of the other four criteria of ESTV Circular No. 36 (Kreisschreiben Nr. 36): minimum 6-month holding period, annual transaction volume < 5× portfolio value at the beginning of the year, realised gains are not needed to cover living expenses, and no derivatives except for hedging.

Question: How high do you rate the risk that the tax authorities could still classify me as a professional securities trader (gewerbsmässiger Wertschriftenhändler) and tax my capital gains as self-employment income?

Has anyone here had experience with a similar case (private loan → IBKR investments + dividends > interest)?

Or does anyone know of someone who obtained a tax ruling / advance decision (Vorbescheid) from the tax office on this topic?

Thank you very much in advance for your thoughts!

Greetings

Peter

[gaijin]

This is a topic that is often discussed in this forum.

My short answer is: based on your assessment, especially “realised gains are not needed to cover living expenses”: you have a low risk of being classified as professional trader.
So far, there was one forum member who proactively asked for an assessment and was classified as professional trader. See here:

Professional investor/trader status

I am based in Bern and got classified by the tax office of Bern as a commercial investor and the tax and AHV can go up to 55% in Bern: I work 100% as an engineer I have almost 150trades per year I did not keep every stock/ETFfor more than 6months I have had leverage money the total volume of trade was maybe about 3-4 times of the capital I wrote this just as a warning for others, as I got asked to do..

This thread discusses margin loans and professional trader status:

Lombard loan and professional trader: is it a problem?

Hello, so we often had the discussion about the “professional trader status” that, in practically all cases, can be neglected. However I was wondering: I just read this post and find this margin loan an interesting option. I use Swissquote and I think they call it Lombard loan there, but it is essentially the same according to my understanding. I would also like to use it, but much much lower percentage than it is mentioned in this post (so I would use less than 25% of my portfolio value). T…

[jay]

@PeterKunz

• The annual dividends from my entire portfolio (including all existing positions) are slightly higher than the annual interest cost of the loan.
• I do not breach any of the other four criteria of ESTV Circular No. 36 (Kreisschreiben Nr. 36): minimum 6-month holding period, annual transaction volume < 5× portfolio value at the beginning of the year, realised gains are not needed to cover living expenses, and no derivatives except for hedging.

If this is accurate, and assuming you don’t have any other loans, you pass all 5 criteria of the “Vorprüfung”. As long as this is the case, the tax office is not allowed to classify you as professional trader. So there is practically zero risk:

Die Steuerbehörden gehen in jedem Fall von einer privaten Vermögensverwaltung bzw. von
steuerfreien privaten Kapitalgewinnen aus, wenn die nachfolgenden Kriterien kumulativ
erfüllt sind.

@PeterKunz

I’m thinking about taking out a private loan

Are you talking about a margin loan or an unsecured consumer credit? The former may be reasonable, depending on the leverage and other aspects, but I would definitely not recommend the latter due to the (usually) high interest rate.