Buying shares with borrowed funds: not necessarily speculation
- Aeacus Lawyers
- 10 minutes ago
- 4 min read
In short Buying shares with borrowed funds does not automatically result in speculative income or abnormal management of private wealth. In advance ruling no. 2020.0177, the Belgian Ruling Commission accepted that a future capital gain on shares would not be taxable, even though the acquisition was partly financed through a bank loan. |
1. Facts of the Ruling
The applicant was the CEO of a foreign group. As part of a management incentive plan, he was given the opportunity to acquire a limited shareholding in a foreign company.
The purpose of the plan was to better align the interests of the CEO and the shareholder. The shares were partially financed through a bank loan. The loan had to be repaid over a five year period and carried a variable interest rate.
Importantly, the applicant had sufficient assets and income to finance the investment entirely with his own funds. However, he deliberately chose to use a loan because, from a profitability perspective, it was more advantageous than using his own capital.
Following the acquisition, the applicant held only a minority participation. The remaining shares remained in the hands of the principal shareholder. The shares were also subject to various contractual mechanisms, including drag along rights, tag along rights, good leaver and bad leaver provisions, call options and put options.
The applicant requested confirmation from the Belgian Ruling Commission that a future capital gain on the shares would not be regarded as speculative income but rather as part of the normal management of private wealth.
2. Decision of the Belgian Ruling Commission
The Belgian Ruling Commission first concluded that a future capital gain would not be taxable as professional income.
There was no set of sufficiently numerous and interconnected transactions that could be regarded as a regular and ongoing professional activity. The applicant remained CEO and his employment remuneration had not decreased as a result of acquiring the shares.
The Commission further confirmed that a future disposal of the shares could be regarded as a normal transaction within the management of private wealth.
The fact that the acquisition was financed through a loan was not held against the taxpayer. On the contrary, the Commission expressly accepted that the applicant had sufficient personal funds available but opted for a loan because freeing up his own capital would have been more costly than obtaining bank financing.
In addition, the investment represented approximately 25% of the applicant's total wealth, meaning that sufficient diversification remained. There were also no preferential distribution rights, no carried interest arrangements, no complex transactions and no sophisticated or artificial structuring.
As a result, any future capital gain would not be considered speculative.
3. What Can We Learn From This?
This ruling confirms that using borrowed funds to acquire shares does not automatically result in abnormal management of private wealth.
A loan may constitute a normal financial instrument, particularly where the taxpayer has sufficient personal resources and the decision to use external financing is economically justified. The mere fact that an investment is financed through debt is therefore insufficient to qualify a future capital gain as speculative income or taxable miscellaneous income.
The assessment remains highly fact specific. Relevant factors include:
the size of the investment relative to the taxpayer's overall wealth;
the existence of sufficient diversification;
the reasons for using debt financing;
the absence of a professional or organised investment activity;
the absence of complex or artificial structures;
the absence of preferential distribution rights or carried interest arrangements.
Although this ruling concerns shares, its underlying reasoning can, in our view, be applied mutatis mutandis to other financial assets, including crypto assets.
In the context of crypto assets, the use of external financing should not automatically lead to a finding of speculation or abnormal management. The overall factual circumstances remain decisive, including the taxpayer's financial capacity, the size of the investment relative to total wealth, the degree of diversification, the rationale for using debt financing and the existence, or absence, of a professional or organised investment activity.
This is consistent with the recent judgment of the Court of First Instance of Walloon Brabant, which held that a short holding period and a concentrated position in a single share are not, in themselves, sufficient to establish speculation or abnormal management of private wealth. The assessment must always be based on the complete factual context, and no single factor is automatically determinative.
4. Conclusion
Acquiring shares or other financial assets through debt financing is not inherently speculative. Where the financing forms part of a reasonable wealth management strategy, the taxpayer has sufficient financial capacity, the risks remain manageable and there is no professional or artificial element, a future capital gain may still fall within the scope of the normal management of private wealth.
Advance Ruling No. 2020.0177 therefore confirms that bank financing is an important factor to consider, but not an automatic disqualifying criterion for normal private wealth management.
This ruling is consistent with existing administrative practice, case law and legal scholarship, according to which individual risk factors are not automatically decisive. The use of futures, for example, does not automatically imply speculation, just as a relatively short holding period, a concentrated position in a single asset or a significant capital gain do not, in themselves, exclude normal private wealth management.
For the sake of completeness, it should be noted that, irrespective of whether a transaction qualifies as normal management of private wealth, capital gains may, from 2026 onwards, fall within the scope of the new general capital gains tax on financial assets, subject to the applicable legal framework. Consequently, a capital gain may fall outside the regime of speculative or miscellaneous income while nevertheless being subject to the new capital gains tax if the relevant conditions are met.
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Author: Senne Verholle
Senne Verholle is a lawyer at the Brussels Bar and specialises in the tax and legal treatment of crypto assets. At Aeacus Lawyers, he focuses on crypto tax advisory, including the analysis and tax qualification of crypto income, capital gains, staking rewards and other digital assets. He assists clients with tax analyses, tax filings and ruling requests.
