Jan 2020: borrowing to pay taxes

What happened in the world in January? A variety of things, which impact the Australian environment a lot more than my portfolio.

The month began with Australia on fire. The month ended with China’s Coronavirus making the world hyperventilate. The latter, 10,000 km away, seems more to blame for the AUD currency dropping 5% to its post Brexit low. Australia’s (worldwide commodities-centric) equities however have risen symmetrically to compensate. The environmental damage may be shocking, but you’ll need to look elsewhere than the markets to see the impact.

Closer to home, as I write this the UK is no longer a member of the EU, and I have lost my rights to live, work (unlikely, to be fair), or retire to (that’s more like it, obvs) 26 countries (and retiring to Ireland is not very appealing). The last couple of weeks of Brexit newsflow have seen the Tories approach knock the FTSE-100 back a bit. This UK equities decline is bucking the wider positive trend.

Bonds, in the meantime, have had a good month. Flights to safety, I imagine, plus various central bank noise that I tune out of.

The markets I’m in, net of currency fluctuations, moved up just over half a percent in Jan. My portfolio dropped about half a percent, even though AMZN is one of its largest holdings and has just popped its $2000/share cherry. Off the top of my head, I’m not sure why my performance is lagging my benchmark – but the headline of ‘not much to see here’ is really what matters.

In the UK, January is the month when you won’t bump into accountants. 31 January is the annual tax deadline. My tax bill this year was the highest for years, thanks to a flurry of windfalls a couple of years ago. This presented me with a six figure cashflow crunch, as in a few days’ time I am due to receive a seven figure sum for selling my old house.

I solved my cashflow challenge with my portfolio loan facilities; I have, without a murmur or delay, withdrawn the six figure sum I need to settle with Her Majesty’s tax collectors, knowing that within two weeks I should have more than enough to repay the portfolio loan in its entirety if I so wanted.

Using this loan has tilted my exposures vs my target allocation slightly, but I have ended up very close to target on all fronts:

As it happens, another way I think about this portfolio loan is that it has allowed me to ‘borrow money’ from the taxman over the last year or two, after I crystallised my windfalls. Rather than pay the tax in advance (which, in Switzerland where rates are negative, they charge you a penalty for), or set the tax due aside in a ‘no risk’ (i.e. no return) account until due, instead I’ve had it invested. In effect, I’ve borrowed money from the tax man. This tax due, as it happens, has earnt about 20% return. Now’s the time to ‘pay back’ the taxman, but in the meantime he hasn’t charged me a penny of interest and I get to keep the five figure sum I’ve made out of his money.

I know it isn’t customary to go into debt to pay your taxes, but it feels like it’s working for me.