Elon Musk and Larry Ellison use ‘buy, borrow, die’. The budget tax reforms mean it’s no longer a strategy reserved just for people with yachts and private jets.
Two of the world’s wealthiest billionaires, Elon Musk and Larry Ellison, have both pledged billions of dollars of company shares as collateral for loans.
It may seem strange that anyone with that much money would need to take out a loan. But there’s a good reason some of the world’s wealthiest people borrow against their investments rather than sell them. Tax.
Selling can trigger a huge capital gains tax bill whereas borrowing doesn’t.
Buy, borrow, die
In the US it’s part of a strategy that’s become known as “buy, borrow, die”.
Buy assets that rise in value, borrow against them when you need cash, then hold them to the grave.
When the owner dies, their heirs generally receive a new “stepped up” cost base, based on the value of the assets at death.
Imagine owning $1bn of shares that originally cost you $100m.
Selling $100m worth creates a large capital gain and tax bill.
Borrowing $100m against the $1bn portfolio creates no capital gain at all.
Private banks have offered this sort of lending to wealthy clients for decades. Until now, it’s seemed like a strategy reserved for people with yachts and private jets.
An Australian example
I suspect we’re going to hear a lot more about it in Australia after next year. From July 2027 the existing 50 per cent capital gains tax discount is set to be replaced with inflation indexation and a minimum 30 per cent tax on real capital gains. That makes realising a large real capital gain much more painful.
Consider an investor who puts $200,000 into a diversified high-growth ETF portfolio in July 2027. If its capital value grows by 10 per cent a year over the next decade, it would be worth about $518,000 by July 2037. Assume inflation averages 2.5 per cent over the same period.
The investor then needs $100,000 to pay school fees, renovate their home or make another investment.
Under the new rules, an investor on the top marginal tax rate would need to sell about $131,000 of investments to have $100,000 left after capital gains tax. That’s much more than the $117,000 they’d need to sell under the current 50 per cent CGT discount. The exact amount would depend on their tax rate, taxable distributions and how the final rules operate.
There’s another option. They could leave the entire $518,000 portfolio invested and borrow the $100,000 instead. That would give them an initial loan-to-value ratio of about 19 per cent.
At an interest rate of 6.5 per cent, the loan would initially cost $6500 a year. If the money was used for school fees or a renovation, the interest generally wouldn’t be tax-deductible. If it was used to buy another income-producing investment, it may be deductible.
Either way, the investor has delayed paying about $31,000 in capital gains tax and kept the full $131,000 invested.
Over 20 years, that difference becomes significant. If the interest was deductible, the investor could end up around $220,000 better off under these assumptions. Even if the interest wasn’t deductible, the benefit could still be around $45,000.
Investments with high capital growth that have been most tax-efficient along the way may give investors the strongest reason not to sell.
What is the buy, borrow, defer strategy?
There’s one catch in Australia.
Unlike America, Australia generally doesn’t reset the cost base of post-1985 investments when someone dies. The beneficiary will generally inherit the deceased investor’s cost base, although the outcome depends on the asset and individual circumstances.
So our version isn’t really “buy, borrow, die”. It’s
“buy, borrow, defer.”
Eventually someone may still have to pay the tax. But delaying a tax bill for 10, 20 or 30 years can still be extremely valuable.
It could also lead to some strange consequences.
A younger investor sitting on a large gain in crypto might know they should diversify but decide the tax bill is too painful so they borrow against their portfolio instead.
A retiree who accumulates substantial real gains after July 1, 2027, might eventually borrow against their portfolio to fund retirement rather than gradually sell investments down.
I’ve seen plenty of investors hang on to investments they no longer really want because they can’t stomach the tax bill. These changes could make that problem worse.
This is the “lock-in effect” of the changes. The bigger your accumulated gain becomes, the more expensive it becomes to exit.
Borrowing of course brings its own risks. Markets can fall, interest rates can rise and lenders can reduce how much they’re prepared to lend against particular investments. Borrow too much and a strategy designed to avoid selling could eventually force you to sell at exactly the wrong time.
So it won’t be right for everyone.
But it’s easy to see how the incentive to borrow rather than sell will become stronger with the new capital gains tax.
Australians won’t have huge gains under the new system on July 1, 2027, they’ll build up slowly. Five years of gains, then 10. Eventually there could be millions of Australians sitting on substantial real gains that face a minimum 30 per cent tax when they’re realised.
Borrow to invest trend
Banks and investment platforms will take notice. We’re already receiving interest from Stockspot clients asking about ways to borrow against their portfolios rather than sell investments.
Products that were once the domain of private banks and billionaires could increasingly find their way into the portfolios of ordinary Australian investors.
When the government makes selling more expensive, people will find other ways to access their money.
Yet another unintended consequence of these tax reforms.
This article is adapted from an opinion piece originally published in The Australian – “How billionaires’ tax strategy could save investors from CGT hit” (16 September 2026).
