The richest people borrow against their stock (2021)

How borrowing against stock works and who can do it

• Many commenters note this isn’t unique to billionaires: brokers and banks offer margin loans, securities‑backed lines of credit (SBLOCs), and “Lombard” loans against stock and bond portfolios.
• Typical loan‑to‑value is ~50–70% depending on asset risk; concentrated or volatile positions get harsher limits.
• Some brokers restrict using margin proceeds to buy more securities; others allow cash withdrawal as a de facto personal loan.

Interest rates and products

• Retail margin/SBLOC rates vary widely: examples include ~SOFR + 2.4–4.4% at one broker, SOFR + 1.9–3.1% at another, vs 11–13% at a higher‑cost broker.
• Interactive Brokers is frequently cited as relatively cheap (roughly Fed funds + 0.5–1.5% depending on size).
• In other countries (e.g., India) such loans can be around 10%, consistent with higher local base rates.

Tax strategies: “Buy, Borrow, Die” & step‑up basis

• Core loophole discussed: very wealthy people can live off loans secured by appreciated stock, never selling, then die.
• On death, heirs get a stepped‑up cost basis (asset basis reset to market value), so decades of gains may escape capital gains tax entirely.
• Several argue this “step‑up in basis” is the main policy problem, not borrowing itself; proposed fixes include carryover basis (heirs inherit the original basis) and/or stronger estate taxation.

Should borrowing against unrealized gains trigger tax?

• One camp argues any economic use of unrealized gains (e.g., collateralized loans) should be treated as realization and taxed.
• Others say loans are liabilities, not income; net worth doesn’t rise when you borrow, so taxing the loan is conceptually wrong and extremely hard to implement without hitting normal borrowers (HELOCs, small‑business loans, etc.).
• Attempts to define “usage” of unrealized gains (covered calls, broker rehypothecation, showing account statements to lenders) quickly become messy and loophole‑prone.

Comparisons: homes, HELOCs, and other collateral

• Repeated analogy: borrowing against stock vs home equity loans or reverse mortgages.
• Some say homes are already indirectly taxed via property tax and (limited) capital gains rules; others note property tax is separate from federal capital gains and often based on undervalued assessments.
• The thread also touches on borrowing against art and other illiquid assets as collateral.

Risk, leverage, and practicality

• Leveraging a portfolio introduces market risk and margin‑call risk; rich borrowers are more diversified and resilient, small investors less so.
• Several simulations and back‑of‑envelope arguments suggest: at today’s interest levels, using SBLOCs to avoid realizing gains can be beneficial in many scenarios but catastrophic in a minority of bad markets.
• Some emphasize these sophisticated “buy‑borrow‑die” structures only make sense above very high net‑worth thresholds (hundreds of millions).

Wealth, fairness, and broader tax ideas

• Debate over whether ultra‑rich “pay their fair share,” with references to their large absolute tax payments vs low effective rates and extreme wealth concentration.
• Alternatives proposed or debated: wealth taxes on financial assets (analogous to property tax on homes), taxing spending instead of income, tightening charitable deductions, and rethinking inheritance/estate rules.
• There is no consensus; commenters agree the current system heavily favors those who can hold appreciating assets indefinitely and access cheap credit.