What is a “buy, borrow, die” strategy?
Under the “buy, borrow, die” strategy, a government may never get to tax the capital gains on an asset. Wealthy individuals, during their lifetimes, borrow against their stock holdings instead of selling them, and then bequeath them to children, for whom the capital gains basis is revised up to the market value at the point of inheritance.
If you own a property portfolio, you could …borrow and die—the same principle.
What if you have assets in a trust fund, could you borrow? —the same principle.
The FT highlights the story of John Foley, founder of Peleton. He used this strategy until his stock fell. Big time. Leveraging only works when asset prices keep rising. See the article here
These strategies work when they work, but fail when they don’t. Rather obvious, but as always it’s all about understanding risk.
Saving tax sometimes becomes too emotional and overshadows logic. A great idea to save tax today is emotionally appealing but have you thought it through?
So often the emotion of saving tax today is taken out of perspective and consequences need to be considered. The big question for the wealthy is have you got enough? When you know your number, making decisions about tax often becomes easier.