Impact of universal German capital gains tax on portfolio rebalance

[dkalder]

Hello,

I am new here as well as to PP - which I would like to start right now - and have a very specific question: since 1/1/2009 there is a capital gains tax of 26,75% in Germany on *any* investment profit, no matter how long the timespan between investment and realization.
That means, however, that each time the portfolio is rebalanced, that tax skims off the profits. The performance of the PP should be hampered significantly by that tax, as every rebalancing gets a hit. After the next federal election in the coming year, that tax is likely to increase to about 30% or 33% in the given political climate (some major parties already plan to).

What action can be taken regarding PP rebalancing to minimize the impact of that tax? Are there structured products which are more efficient because rebalancing is internalized and thus not taxed?

Best regards,
DKalder

[Ad Orientem]

Hi and welcome to the forum. My first suggestion would be to visit the European Permanent Portfolio blog which can be found here...

http://europeanpermanentportfolio.blogspot.com/

You may be able to get better answers there.

Not living in Europe my advice is likely to be rather generic. First be careful not to rebalance more frequently than absolutely necessary. Use tax efficient funds to the extent possible. If you need to tap into your PP for any reason be sure to take the money from whichever part is outperforming as this might postpone the inevitable rebalancing. Also you might want to look around and see if there are any one stop shopping funds similar to PRPFX here in the US that might work. That fund does its rebalancing internally and it has an excellent track record for tax efficiency.

Beyond that taxes are just one of those things that we try to minimize but in the end we all have to pay. Europe is a much higher tax environment than here in the US though I suspect that will be changing soon. There is only so long you can live on the national credit card (sorry MMRers). This is probably not a very satisfactory answer but in the end you are probably just going to have to endure the tax bite every 2-3 years even with aggressive efforts to minimize rebalancing events.

[Arturo]

Hi,

i am also interested on this thread. Here in Europe, our countries taxes our investments with:

-capital gain
-dividend gain
-interest gain
-withholding taxes in case your are investing from abroad, like Europe in US securities.

i would like to know if somebody has ever made a simulation about how this taxes could affect and impact the PP performance. It really looks to me that all the efforts made on maintaining the investment cheap (passive, ETFs, etc), can be canceled thanks to this amount of taxes, above all interest gains, capital gains and withholding taxes for EU residents.

unfortunately, the european portfolio blog looks really abandoned (at least the english version), so there is no information about this issues.

Hope somebody could gives us a clue about all of that,

regards