In stepping up of the cost basis aka acquisition cost of an asset means, for capital gains purposes, the asset's purchase price is valued on the day of a particular action such as moving to the country rather than the true price at the time of the asset purchase in the past. I would like to know if anyone has any knowledge and experience with the issue of cost basis of an asset (shares, coins) while changing residence.
I vaguely recall reading that Denmark had an incentive like this years ago but I'm not sure that's current.
The US steps up the the cost basis upon acquiring residency as well as when a person passes away and the assets are transferred to the inheritance recipients.
Canada also steps up the cost basis of the assets of a new resident meaning taxes will only be levied for any appreciation following arrival in Canada.
UK/Ireland have the non-domicile status which excludes CGT from assets abroad not transferred in the country.
This is also a non-issue if the original country of residence has some sort of exit tax or 'deemed disposal' of an asset when moving out.
Some countries don't charge CGT ie. UAE, Cyprus, Monaco, Switzerland (in some cases), Belgium (in some cases), Netherlands (box 3 deemed investment income).
I'm particularly concerned about this issue as I am considering a move to some countries who's currencies depreciated quite a bit against the USD thus causing some "ghost" gains in local terms.
It's probably 'wrong' to think in terms of USD however I earned, hold and do all trades in USD.
Example:
Buy asset for $1M in 2012 while resident in Country A
Sell asset for $1.2M in 2022 while resident in Country B ... who's currency depreciated significantly 50% against the USD.
$200k profit in USD might be an equivalent of $530k profit in local currency converted back to USD using the cost basis of $1M in 2012.
$1M * 2 = 2M local currency purchase price, $1.2M * 3 = 3.6M local currency disposition price. Gain 1.6M local currency equivalent to $533k gain in USD.
Country B charges 10% on capital gains.
Capital gains tax on the transaction would be ~$53k, however in reality the profit was "only" $200k in USD and thus one pays an effective 27% CGT due to the currency move even if I was non resident in Country B at the time of acquisition.
I vaguely recall reading that Denmark had an incentive like this years ago but I'm not sure that's current.
The US steps up the the cost basis upon acquiring residency as well as when a person passes away and the assets are transferred to the inheritance recipients.
Canada also steps up the cost basis of the assets of a new resident meaning taxes will only be levied for any appreciation following arrival in Canada.
UK/Ireland have the non-domicile status which excludes CGT from assets abroad not transferred in the country.
This is also a non-issue if the original country of residence has some sort of exit tax or 'deemed disposal' of an asset when moving out.
Some countries don't charge CGT ie. UAE, Cyprus, Monaco, Switzerland (in some cases), Belgium (in some cases), Netherlands (box 3 deemed investment income).
I'm particularly concerned about this issue as I am considering a move to some countries who's currencies depreciated quite a bit against the USD thus causing some "ghost" gains in local terms.
It's probably 'wrong' to think in terms of USD however I earned, hold and do all trades in USD.
Example:
Buy asset for $1M in 2012 while resident in Country A
Sell asset for $1.2M in 2022 while resident in Country B ... who's currency depreciated significantly 50% against the USD.
$200k profit in USD might be an equivalent of $530k profit in local currency converted back to USD using the cost basis of $1M in 2012.
$1M * 2 = 2M local currency purchase price, $1.2M * 3 = 3.6M local currency disposition price. Gain 1.6M local currency equivalent to $533k gain in USD.
Country B charges 10% on capital gains.
Capital gains tax on the transaction would be ~$53k, however in reality the profit was "only" $200k in USD and thus one pays an effective 27% CGT due to the currency move even if I was non resident in Country B at the time of acquisition.
