I don’t think this is a standalone rule, is it? It needs to be considered alongside other factors.
In my 2023 tax return my interest on margin loan exceeded dividend income and I was not questioned about being a professional trader. I invest mainly in Fundsmith which has low dividend yield and in general I try avoid dividend stocks for tax efficiency reasons.
I am in full time employment and my taxable salary income is many times greater than the interest paid. I am clearly not a professional trader.
I did not disclose my transactions in my tax return but if I did the authorities would see I am a buy and hold investor. I made several purchases in the year and I am not sure if I made any sales at all. If I did it was only 1 or 2 sales
Yes agreed, it needs the whole context. And practise has shown if you violate one rule, you‘re generally fine. And also depending on how much you violate it.
If you would go 2x over it, probably a way different thing than going a little over it.
This is the most important part anyway.
If you dont do high frequency trading with the intent of replacing income. You are going to be fine it 99.99% of cases.
If you longterm invest to generate longterm wealth, it‘s gonna be likely fine, even if some rules are bent here and there.
Thanks for the idea but you are correct I hope to keep the margin loan.
If I lose this credit line the opportunity cost is quite significant for me. I also paid off my UK mortgage and replaced it with a cheaper IB loan.
There is no problem to own FS at IB if you don’t want a loan. Indeed I noticed it might now be advantageous to do so because it seems we might now be able to buy the cheaper Investor class shares without needing to own £5M (tbc)
I agree. Hopefully next week I will get confirmation that the current problem has been solved by my choice to change to Portfolio Margin.
But it has shown me that we cannot safely rely on the margin loan facility from IBKR. As @PhilMongoose pointed out rules can be changed unilaterally by any bank at any time. In the case of IB without communication (website still says 50% margin is required not 100%) or recourse and it has taken 10 days to understand why
Well IB is the easiest to borrow money on margin and and you can do it by just a click in any currency you want.
Anyway if you shop around and have accumulated a decent amount of money you can do as good with swiss banks. Some offers lombard loans at 0,8-1% + SARON. Even with 0,25-0,3% deposit fees it could be worth it.
VZ charge only 0,07% and offer lombard loans from 50k but they are rather conservative and will let you borrow 25% of your asset.
By Raiffeisen or cantonal banks they start at 30k and let you borrow 50-60% of your equities.
I don’t have currently any lombard loan and all my equities are by IB but I am aware of this for my future situation
The absolute values for the rates don’t really make sense? Or is that meant as benchmark + mark-up?
What’s a “decent amount”, I guess in the millions?
So yea, if you already “won the game” you have access to some cheap loan to finance whatever else. But probably not something for the average Joe accumulator.
I’d also would bring box-spreads into the conversation. You’ll probably not be abel to get a bette rate than this anywhere. Not tax deductible though and a bit challenging to execute.
Most importantly you can’t get more safety than with state guaranteed cantonal banks. IBKR can theoretically from one day to the other force you to pay all margin back with no notice beforehand.
If your sum is big enough the rates are actually bearable for the safety IMHO.
For those who have studied it, are the terms for cantonal banks really that different? i.e.: they can’t liquidate your position without warning and/or they can’t easily change how much collateral is required and/or what counts as collateral?
All banks can change the terms and the collateral rules. I had the experience at a Raiffeisen (not a cantonal bank, of course)
The limitation with IB is that they don’t have anything akin to client advisors and there is no escalation path. You get what you pay for. Even if you were a HNW client that other banks would fight to attract (I am not) you have no levers to pull
if I was to change I would reassurance that I have an escalation path and someone who would look out for me in the event of such a change. So that I can sleep well during RE
InteractiveBrokers: Margin interest rate is BM + 1.5%, less for higher amounts [1]
Pictet: This information is not available, but on the fatFire reddit forum, a user suggested that he gets SBLOC 0.8% over base - Pictet (UK) [2], but that might not be in CHF.
Julius Bär: This information is not available, but like with Pictet, they are a wealth management provider, so you really can’t compare it to IB.
Raiffeisen: No available information, except that the custody fees will be around 0.25% [3].
Cantonal Banks: No available information. Schwyzer Kantonalbank starts at 0.2% [4]. Zürcher Kantonalbank at 0.3% [5]
Swissquote: Current margin for CHF is reference rate +3% [6].
Credit Suisse: That information is also not available.
Pictet, Julius Bär, and Credit Suisse (UBS) cannot be compared to brokers like Interactive Brokers (IB) because they offer wealth management services. These services include portfolio management, international tax advice, dealmaking, and more. They are designed for high-net-worth individuals.
That’s what some bankers tôle me when I was Shop around for mortgage. Never contracted anyway.
Typical offer was from cantonal bank:
They told me same rate as for RE Hypotek. Saron flex + 1% cancellation whenever you want. Custody fees 0,3% + once 300 frs administrative fees.
This was without any négociation I bet 0,8% with lower custody fees is achievable.
It’s hard to find a good banker nowadays but I think for someone who must wait a bit to refinance hypothek with higher amount to use a maximum leverage, Lombard loan could be a powerful instrument if uses reasonably.
Not sure about Swiss banks, but US HELOCs, current account mortgages and offset mortgages might come close to achieving the same thing.
I think probably mortgage is the best way to do it as there’s a defined pipeline and standardized products and a just big enough value to get it done.
Otherwise companies do it regularly, but I guess those are typically multi million facilities where the costs of drafting the agreement can be covered.
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