Taxes

Taxes can make a significant impact on return and optimal portfolio.

Wealth and/or capital gains taxes are determined by your tax residency (where you live). The simplest but also hardest way to change them is therefore to move. Be aware of exit taxes.

Note that taxes are almost always on a nominal basis, not on excess or real returns.

Inheritance and gifts are also often taxed.

Fixed taxes

Examples:

• Dutch wealth of 2001 of 1.2% per year
• Norwegian wealth tax of 0.7-1.1% per year
• Swiss wealth tax of 0.1%-0.6% per year

These taxes are non-distortive. You keep the same asset allocation as you would have before, except you put some money aside each year.

Taxes on unrealized gains

Examples:

• Dutch proposed tax plan 2028
• Irish ETF tax

Taxes on unrealized gains are not very distortive, as long as you can claim back losses. If the tax is x%, then you leverage up by \( 1/(1-x%) \) such that your after tax return is your initial return.

Taxes on realized gains

Examples:

• US equity capital gains tax
• German capital gains tax
• Dutch box 2 investments

These taxes are distortive in that there is an incentive to hold an asset that has appreciated to defer taxes. Effectively you get a 0% interest loan on any taxes you would have needed to pay.

Random stuff

Dutch interim wealth tax

Different wealth tax per asset class (cash, debt, investments). As return are dependant on risk, not asset class, this incentivizes:

• holding high risk inventments (futures, options, cfd’s) and cash
• avoiding low risk investments (fixed income)

German dividend exemption

It is beneficial to try to get as close to the limit of tax-free divideds as possible.