The math seems bulletproof. You build a €1 million portfolio, retire early, then live off borrowed cash instead of selling your stocks. No sales means no capital gains tax. No capital gains tax means, in theory, zero declared income. And zero declared income means you join the exclusive club of 13,335 French millionaires who paid no income tax in 2024.
This isn’t a loophole from some shady offshore scheme. It’s the crédit lombard (Lombard loan), a secured lending product offered by brokers like DEGIRO and Interactive Brokers. French FIRE enthusiasts are now asking: can we use this to hack our way to tax-free independence?
The strategy exploded in online discussions after recent revelations that thousands of wealthy French households legally avoid income tax. The appeal is obvious, why pay 30% flat tax on your gains when you could pay 3-5% interest on a loan instead? But the devil lives in the details, and French regulators have already built traps for the unwary.
What Exactly Is a Lombard Loan?
A Lombard loan lets you borrow money using your investment portfolio as collateral. You pledge €100,000 in ETFs or stocks, and the broker lends you a percentage of that value, typically 50-70% for diversified portfolios, less for volatile assets. Unlike a mortgage, you can use the cash for anything: daily expenses, real estate, or even reinvesting.
The key difference from a standard margin account is structure. Lombard loans are formal credit agreements, often with fixed terms and rates, while margin is more flexible but riskier. In France, this distinction matters because prélèvement à la source (pay-as-you-earn withholding) only applies to actual income, not debt proceeds.
The FIRE Fantasy: Living on Borrowed Money
The Reddit user who sparked the debate laid out a simple plan: instead of selling 3-4% of his portfolio annually to fund retirement, he’d borrow that amount via Lombard loan. His reasoning?
- €30,000 withdrawn via sales triggers €9,000 in flat tax (30% on gains), leaving him with €21,000 net
- €30,000 borrowed via Lombard loan costs €1,200 in annual interest (at 4%), with zero tax impact
- Portfolio growth should outpace the interest, allowing him to roll the loan indefinitely
This mirrors the buy, borrow, die strategy in France and inheritance tax implications that wealthy families have used for generations. The difference? FIRE followers want to do this with a €500K-€1M portfolio, not a €50M family office.
The Math Falls Apart When Markets Crash
Here’s where optimism meets margin call. One commenter pointed out the brutal reality: if you borrow €30,000 against a €100,000 portfolio, you’re at 30% loan-to-value (LTV). A 20% market drop cuts your collateral to €80,000, pushing your LTV to 37.5%. If it hits 50%, the broker issues a margin call (demand for immediate repayment) and can liquidate your entire position to cover the loan.
During the COVID crash, portfolios dropped 35% in weeks. Anyone with a Lombard loan would have faced forced liquidation at the absolute bottom, destroying years of compounding. The strategy works perfectly in backtests, but markets don’t read spreadsheets.
The golden rule from wealth managers: keep LTV below 20-25% max, and have cash reserves to post additional collateral during crises. That means on a €1M portfolio, you only borrow €200K-€250K, not the €750K some aggressive FIRE calculators suggest.
Platform Wars: DEGIRO vs Interactive Brokers
Not all brokers play by the same rules. One Redditor claimed Interactive Brokers blocks Europeans from withdrawing margin cash, citing regulations since 2021. Another replied they successfully used IBKR margin for real estate purchases.
The truth lies in your statut de client (client status). Retail European clients face stricter rules under MIFID II, which limits how brokers can offer leverage. Professional clients (with €500K+ assets or financial sector experience) get more freedom. DEGIRO’s “Margin Account” option is more accessible but offers less favorable rates than IBKR’s professional tier.
Before opening any account, verify:
– Can you withdraw cash, or only use margin for securities purchases?
– What’s the taux d’intérêt (interest rate) for your currency?
– How often do they revalue collateral, and what triggers a margin call?
The Tax Question: Will DGFiP Requalify Your Loan?
This is the trillion-euro question. The Direction Générale des Finances Publiques (DGFiP) has broad powers to recharacterize transactions. If they determine your Lombard loan is essentially a disguised sale, they could tax you on the entire amount.
French tax law treats debt proceeds as non-taxable, but there’s a catch: abus de droit (abuse of law). If the primary purpose is tax avoidance, authorities can strike it down. The 13,335 millionaires avoiding income tax aren’t using Lombard loans, they’re using holdings familiales (family holding companies) and living off unrealized gains.
The Lombard loan strategy sits in a gray area. One commenter noted it’s common in Luxembourg but rare in France. That’s not a coincidence. French tax authorities aggressively pursue anything that smells like artificial tax avoidance.
The Political Firestorm
The revelation that 10% of IFI (Impôt sur la Fortune Immobilière) payers have zero income tax liability has sparked national debate. Former Economy Minister Éric Lombard claimed “thousands” of wealthy French pay no income tax, the government denied it, then Bercy documents proved him right.
These millionaires aren’t using Lombard loans. They’re living off capital that’s never taxed until realization, using niches fiscales (tax loopholes) like the Dutreil scheme for business transfers. The political pressure is building, expect tighter rules on unrealized gains.
This makes the Lombard loan strategy a moving target. What works today might be legislated away tomorrow, especially with France’s budget deficit under pressure.
When It Actually Works: The Ultra-Wealthy Model
The comments from a conseiller en gestion de patrimoine (wealth manager) clarified the real use case. Wealthy clients borrow €20 against €100 in assets, invest the combined €120, and let the 10% market returns cover the 5% interest. They’re not living off the loan, they’re using leverage to amplify returns while minimizing tax events.
For FIRE purposes, this means the Lombard loan works best as a bridge or tax smoothing tool, not a permanent income source. Use it during high-income years to defer gains, then repay during market dips when your tax burden is lower.
The Dutch Warning Shot
France is watching the Netherlands, which will implement a 36% tax on unrealized gains starting 2028. If that spreads, the entire strategy collapses. The unrealized gains tax risks in Europe and implications for tax-advantaged borrowing article explains why French investors should be nervous.
Bottom Line: A Tactical Tool, Not a Magic Wand
The Lombard loan can reduce your tax drag, but it’s not a free lunch. The math only works if:
– Your portfolio exceeds €500K (below that, fees and interest eat the benefit)
– You maintain LTV below 25%
– You have 2-3 years of expenses in cash to survive margin calls
– You accept the risk of tax requalification
– You monitor regulatory changes constantly
For most French FIRE seekers, the classic PEA (Plan d’Épargne en Actions) and assurance-vie (life insurance wrapper) remain safer tax shelters. The Lombard loan is a scalpel for advanced users, not a Swiss Army knife for everyone.
The 13,335 tax-free millionaires aren’t financial hackers, they’re asset owners who understand that in France, wealth is taxed less than work. Whether you can join their ranks depends less on clever loans and more on building capital in the first place.
The real secret? The strategy works best when you don’t need the money. Irony is the highest tax bracket of all.
