The margin call risk on a brokerage margin account is not just a liquidity problem, it can force a taxable sale of your lowest-basis shares at the worst time, permanently destroying the step-up benefit you were trying to preserve.
Lombard Loan
A Lombard loan is a private credit facility extended by a private bank or wealth manager, secured against a pledged portfolio of liquid assets including equities, bonds, funds, structured products, and sometimes art or life insurance policies. Swiss private banks such as Julius Baer, Pictet, and Lombard Odier routinely offer LTVs of 50 to 70 percent on diversified portfolios, with rates typically ranging from SOFR plus 0.5 percent to SOFR plus 2 percent depending on relationship size and collateral quality. The minimum entry point at most Swiss and Liechtenstein institutions is a pledged portfolio of at least 1 million USD or EUR equivalent, and the facility is structured as a revolving credit line rather than a margin account, meaning there is no daily mark-to-market margin call in the brokerage sense. This structure is the core mechanic behind buy-borrow-die planning: you access liquidity at low cost, the loan interest may be deductible depending on jurisdiction, and the underlying appreciated assets never get sold or taxed.
Margin Loan
A margin loan is a standardized brokerage product available at Interactive Brokers, Schwab, Fidelity, and most retail and institutional brokers, secured against exchange-listed equities and ETFs held in a margin account. Regulation T in the US caps initial margin at 50 percent of equity value, though portfolio margin accounts at larger brokers can push effective LTV to 85 to 90 percent on diversified holdings. Interactive Brokers currently charges benchmark rates as low as SOFR plus roughly 0.3 to 1.5 percent depending on loan size, making it arguably cheaper on rate than most Lombard facilities for clients borrowing under 10 million USD. The critical tradeoff is inflexibility: margin accounts are subject to daily mark-to-market, and a broker can issue a margin call and liquidate positions within hours during a sharp drawdown, which can force a taxable event at exactly the wrong moment. Margin loans are accessible to anyone with a funded brokerage account, with no relationship or minimum portfolio requirement beyond what the broker sets.
Tax and Structuring Implications
Neither loan triggers a realization event on its own, which is the entire point for high-net-worth borrowers sitting on low-basis concentrated positions. The difference shows up in how each facility interacts with your broader structure. A Lombard loan booked through a non-US private bank, with collateral held inside an offshore structure, can keep both the assets and the borrowing outside US reporting requirements if you are a non-US person or have properly structured your holdings. A US brokerage margin account by contrast falls squarely inside the US tax and reporting perimeter. Interest deductibility on both facilities depends on how proceeds are deployed: in the US, investment interest expense is deductible up to net investment income under IRC Section 163(d), but only if you itemize. Some jurisdictions, particularly those with territorial or remittance-based tax systems, allow more generous treatment of borrowing costs, which is one reason Lombard structures are often layered into offshore planning for internationally mobile clients.
Choosing Between Them
Use a margin loan if you need fast, low-cost liquidity against a straightforward stock and ETF portfolio, have no immediate tax residency complexity, and can tolerate forced liquidation risk in a volatile market. Use a Lombard loan if your portfolio is large enough to qualify, includes illiquid or non-listed assets you want pledged, or sits inside an offshore entity where you need a lender willing to engage with complex collateral structures. For portfolios above roughly 5 million USD with concentrated low-basis positions and multi-jurisdiction complexity, a Lombard facility at a Swiss or Liechtenstein private bank is almost always the more durable tool because it is negotiated, not automated, and the lender will work with you rather than liquidate you automatically.
Things people ask first.
What is the main practical difference between a Lombard loan and a margin loan?
A Lombard loan is a negotiated private credit line from a private bank, with flexible collateral and no automated liquidation trigger. A margin loan is a standardized brokerage product subject to daily mark-to-market and automatic margin calls.
Can you use a Lombard loan in a buy-borrow-die strategy?
Yes. The Lombard structure is the preferred mechanic for buy-borrow-die at scale because the facility is renewed or rolled rather than called, giving heirs time to receive stepped-up basis assets while the estate services or repays the loan.
Which is cheaper, a Lombard loan or a margin loan?
Margin loans at large brokers like Interactive Brokers are generally cheaper on rate for smaller facilities, often SOFR plus 0.3 to 1 percent. Lombard loans cost more in rate terms but include relationship services and collateral flexibility that justify the spread for larger, more complex situations.
What assets can be pledged for a Lombard loan that cannot be pledged for a margin loan?
Lombard lenders can accept unlisted funds, structured notes, life insurance policies, fine art, and in some cases real estate or private equity stakes. A brokerage margin account is generally limited to exchange-listed securities.
Is the interest on either loan tax deductible?
In the US, interest on both facilities may qualify as investment interest expense under IRC Section 163(d), deductible up to net investment income for itemizers. Non-US structures and territorial tax regimes often allow broader deductibility, which is part of why Lombard facilities are popular in offshore planning.
What LTV can I realistically get with a Lombard loan versus a margin loan?
A Lombard loan on a diversified portfolio typically delivers 50 to 70 percent LTV. A portfolio margin account at a major US broker can go to 85 to 90 percent on qualifying diversified holdings, though that higher leverage comes with proportionally higher forced-liquidation risk.
Ready to implement a borrow-against-assets structure that actually holds up?
The Offshore Playbook maps the full Lombard and buy-borrow-die setup, including which private banks engage with offshore structures, how to hold collateral offshore, and how to layer the borrowing against a low-tax residency.
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