Which Countries Actually Tax Unrealized Capital Gains

Unrealized Capital Gains Taxation: What the Global Push Means for Your Portfolio

Unrealized capital gains taxation is no longer a fringe idea debated in academic journals. The Biden administration's FY2025 budget proposed a 25% minimum tax on unrealized gains for households worth over $100 million, projected to raise $503 billion over ten years. Several countries have already moved. If you hold concentrated positions in private equity, real estate, or appreciated stock, the policy trajectory matters now.

The "Buy, Borrow, Die" Strategy That Started This Fight

The mechanism driving these proposals is straightforward. Ultra-high-net-worth individuals accumulate wealth in appreciating assets, borrow against those assets at low interest rates to fund living expenses, and then pass the portfolio to heirs. Under IRC Section 1014, heirs receive a stepped-up cost basis at death, permanently eliminating the embedded gain.

A $5M portfolio that compounds to $20M over 30 years passes to heirs with zero capital gains tax on $15M of appreciation under current law. The Joint Committee on Taxation has described the step-up in basis at death as one of the largest tax preferences in the federal code, with the provision eliminating tax on trillions of dollars of accumulated gains annually.

ProPublica's analysis of IRS data found that the 25 wealthiest Americans paid a true tax rate of just 3.4% on $401 billion in wealth growth between 2014 and 2018. That number became the empirical foundation for every unrealized gains tax proposal that followed.

This is the specific strategy these proposals are designed to disrupt. If you are running a variation of buy-borrow-die with a concentrated founder position, a real estate portfolio, or illiquid private equity stakes, you are the target demographic for these proposals, regardless of whether your net worth clears the $100M threshold in current drafts.

Which Countries Currently Tax Unrealized Capital Gains

The short answer is: more than most people realize, though the mechanisms vary significantly.

The Netherlands operates a Box 3 system that assumes a notional return on assets and taxes that presumed income annually, regardless of actual gains. Switzerland levies a cantonal wealth tax on net worth including appreciated asset values. Norway applies a 1.1% annual net wealth tax on net wealth above approximately NOK 1.7 million (roughly $160,000 USD), using a formula-based approach to value unlisted shares.

IRC Section 1256 already requires certain U.S. financial contracts, including regulated futures contracts and foreign currency contracts, to be marked to market annually and taxed on unrealized gains. The U.S. tax code has existing precedent for taxing gains before realization. The debate is about scope, not principle.

Global statistics on very high net worth individuals show that the population most exposed to these proposals is larger than the "billionaire" framing suggests. Founders with illiquid equity, real estate investors with appreciated portfolios, and private equity stakeholders can clear the relevant thresholds well before reaching nine-figure territory.

The Constitutional Question the Supreme Court Left Open

The U.S. constitutional challenge to unrealized gains taxation is real and unresolved. In Moore v. United States (2024), the Supreme Court upheld the mandatory repatriation tax on a 7-2 vote, but the majority explicitly declined to rule on whether Congress could constitutionally tax unrealized gains. The Court's restraint was deliberate. Several justices signaled concern about the broader implications.

The Sixteenth Amendment authorizes Congress to tax "incomes." Whether an unrealized gain constitutes "income" in the constitutional sense remains contested. The government's position in Moore was that realization is a matter of administrative convenience, not constitutional requirement. The dissent pushed back hard. The question is unresolved.

What this means practically: any enacted unrealized gains tax would face immediate constitutional challenge. Litigation timelines would likely stretch years. That creates a planning window, but not a permanent safe harbor. Assume the constitutional challenge is a speed bump, not a wall.

Norway's Wealth Tax Experiment: The Capital Flight Evidence

Norway provides the most directly comparable real-world case study for evaluating behavioral responses to wealth taxation. Following Norway's 2022 increase in its net wealth tax rate from 0.85% to 1.1%, Statistics Norway documented that more than 30 of the country's wealthiest individuals relocated abroad, primarily to Switzerland. Norwegian officials acknowledged publicly that the capital flight could offset projected revenue gains.

The NBER's research on Switzerland's cantonal wealth taxes found similar behavioral responses: asset relocation, valuation manipulation, and restructuring among ultra-high-net-worth individuals. The evidence suggests that annual taxes on illiquid wealth face serious enforcement and avoidance challenges, particularly when taxpayers have international mobility.

Argentina's controversial wealth tax offers a starker example. Argentina's emergency wealth tax, introduced in 2020, generated significant one-time revenue but accelerated capital outflows and reinforced the country's reputation as a high-risk jurisdiction for wealth accumulation.

France repealed its wealth tax (ISF) in 2018 after evidence emerged that it had driven capital flight and generated less revenue than projected. The replacement, a tax on real estate wealth only (IFI), was explicitly designed to reduce the incentive for wealthy individuals to relocate financial assets offshore.

The pattern across jurisdictions is consistent: aggressive wealth taxation without international coordination produces behavioral responses that partially or fully offset revenue projections.

Canada's 2024 Capital Gains Changes: Not Unrealized, But Relevant

Canada's 2024 federal budget increased the capital gains inclusion rate from one-half to two-thirds for gains realized on or after June 25, 2024. This applies to corporations and trusts on all gains, and to individuals on gains exceeding $250,000 annually.

This is not an unrealized gains tax. But it directly affects the same population and the same asset classes. A Canadian resident selling a private business or a real estate portfolio now includes 66.67% of the gain in taxable income rather than 50%. For a $10M gain, that is an additional $166,700 in taxable income at the top marginal rate.

The Canadian change also illustrates the incremental path that may be more politically viable than a full mark-to-market regime: raise inclusion rates, reduce the realization threshold, and tighten the step-up equivalent (the principal residence exemption and adjusted cost base rules). The direction of travel is clear even if the destination is not a full unrealized gains tax.

For FATFIRE readers with cross-border exposure, UK capital gains taxation for non-residents and Germany's capital gains tax structure have also shifted in recent years, with both jurisdictions tightening rules on non-resident property gains and exit taxation.

How Proposed Unrealized Gains Taxes Interact With Existing Planning Structures

If you have a tax attorney, you are likely already using one or more of the following structures. Here is how they interact with proposed mark-to-market regimes.

Grantor Retained Annuity Trusts (GRATs): A GRAT transfers appreciation above the IRS Section 7520 hurdle rate to heirs gift-tax-free. Under a mark-to-market regime, the annual appreciation inside the GRAT could become taxable before transfer. Current legislative proposals have been inconsistent on whether trust assets would be subject to annual mark-to-market, creating genuine uncertainty.

Charitable Remainder Trusts (CRTs): A CRT allows you to contribute appreciated assets, receive an income stream, and defer capital gains tax on the sale inside the trust. Under some unrealized gains proposals, the contribution itself could trigger a deemed realization event. The interaction is unresolved in current draft legislation.

Qualified Opportunity Zone (QOZ) investments under IRC Section 1400Z-2: QOZ investments defer and partially exclude capital gains. A mark-to-market regime applied to QOZ holdings would conflict directly with the deferral mechanism. Again, current proposals have not addressed this coherently.

Installment sales to grantor trusts: This structure remains one of the more robust options under proposed regimes because it involves actual realization (a sale), just with deferred payment terms. It may become more attractive if mark-to-market rules tighten other deferral structures.

The honest answer is that most existing deferral structures were designed around a realization-based system. A genuine mark-to-market regime would require rebuilding your planning architecture from the ground up.

How Unrealized Capital Gains Taxation Affects Illiquid Asset Holders

The Federal Reserve's 2022 Survey of Consumer Finances found that the top 1% of U.S. households held approximately 30% of all household net worth, with a substantial portion concentrated in closely held businesses and real estate. These are precisely the asset classes that pose the greatest valuation and liquidity challenges under any mark-to-market regime.

Consider a founder holding $15M in illiquid private company equity. Under a 25% minimum tax on unrealized gains, a $3M appreciation in a given year generates a $750,000 tax bill. The founder has no liquid proceeds from which to pay it. The options are: take on debt (which has its own cost), sell secondary shares (which may not be possible or may trigger a down-round signal), or sell the company earlier than planned.

Tax Foundation analysis found that a mark-to-market tax would disproportionately affect owners of private businesses and real estate partnerships, where annual fair market valuations are costly, contested, and may require forced asset sales to meet tax obligations. The valuation problem is not trivial. Illiquid assets do not have daily prices. Any annual tax on unrealized gains requires either a government-mandated appraisal process or a formula-based approach, both of which introduce significant error and dispute risk.

This is where the Norway model is instructive. Norway uses a formula-based approach for unlisted shares, applying a multiplier to book value. The result is a systematic mismatch between taxable value and economic value, which creates both over-taxation in some cases and under-taxation in others.

Jurisdiction Planning and the Exit Tax Trap

For U.S. persons considering international restructuring in response to these proposals, the exit tax under IRC Section 877A is the critical constraint. The provision marks to market all worldwide assets above a threshold on the day before expatriation. If you are renouncing U.S. citizenship specifically to avoid a future unrealized gains tax, the exit tax may trigger the very liability you are trying to avoid.

The EU's Exit Tax Directive (Council Directive 2016/1164/EU) creates a parallel constraint for European residents. EU member states must impose exit taxes on unrealized gains when individuals or companies transfer assets or residency out of the EU. Germany, France, and the Netherlands have all implemented this, with deferral options available for moves within the EU or EEA. Moving from Germany to Switzerland avoids the EU deferral option and triggers immediate taxation.

Countries with no capital gains tax remain a planning consideration, but the exit tax cost of accessing them has increased materially. Portugal's wealth tax framework and Israel's capital gains tax approach represent two jurisdictions that have attracted high-net-worth relocations in recent years, each with distinct tradeoffs.

For U.S. persons specifically, the more practical near-term response is state-level planning. New York's proposed wealth tax and Maryland's wealth tax implications represent state-level proposals that could layer on top of any federal unrealized gains tax, and state residency changes carry far lower exit costs than expatriation.

Portfolio Positioning for High-Net-Worth Individuals

Standard 60/40 guidance is written for people with liquid, diversified portfolios. If you hold a concentrated $8M position in a single appreciated stock, or $12M in a real estate partnership, the relevant question is not asset allocation theory. It is: what is my tax liability under various scenarios, and what is my liquidity to meet it?

Several positioning considerations are worth working through with your tax attorney now, before any legislation passes.

Accelerate realizations selectively. If you have positions you were planning to sell in the next three to five years, the calculus on timing has shifted. Realizing gains under current law at 20% plus net investment income tax may be preferable to waiting for a potential mark-to-market regime at 25% or higher on annual appreciation.

Review trust structures for mark-to-market exposure. If your estate plan relies heavily on GRATs or CRTs, ask your attorney to model the impact of a mark-to-market regime on each structure. The answer will depend on the specific legislative language, which remains unsettled.

Maintain liquidity buffers proportional to unrealized gains. If a mark-to-market tax were enacted, you would need liquid assets to cover annual tax bills on illiquid holdings. A rough planning assumption: if your illiquid portfolio appreciates 10% annually and a 25% tax applies, you need 2.5% of illiquid portfolio value in liquid assets annually just to cover the tax obligation.

Monitor state-level proposals independently. Federal proposals get the headlines, but state-level wealth taxes can be enacted faster and with less political friction. Historical capital gains tax revenue trends show that states have increasingly looked to capital gains as a revenue source as income tax bases have narrowed.

The Difference Between a Wealth Tax and an Unrealized Capital Gains Tax

These are distinct mechanisms that often get conflated in policy discussions, and the distinction matters for planning.

A wealth tax levies an annual charge on total net worth above a threshold, regardless of how that wealth was accumulated or whether it has appreciated. Norway's 1.1% annual levy and Switzerland's cantonal taxes are wealth taxes. They apply to the stock of wealth, not the flow of appreciation.

An unrealized capital gains tax targets the annual increase in asset value, not the total value. The Biden FY2025 proposal was structured as a minimum income tax that treated unrealized appreciation as income, applying a 25% rate to the total of realized and unrealized gains for taxpayers above $100M in wealth.

The practical difference: a wealth tax on a $20M portfolio at 1% costs $200,000 annually regardless of whether the portfolio appreciated. An unrealized gains tax on the same portfolio costs nothing in a flat year and $500,000 in a year when the portfolio appreciates 10% (at a 25% rate on $2M of appreciation).

For illiquid asset holders, the unrealized gains tax is more volatile and potentially more punishing in strong appreciation years. The wealth tax is more predictable but creates a permanent annual drag. Neither is designed with the illiquid, concentrated holder in mind.

Wealth thresholds for the top 1% have shifted significantly over the past decade, meaning proposals nominally targeting billionaires increasingly capture the upper end of the FATFIRE range as asset values have compounded.

References

• U.S. Supreme Court -- "Moore v. United States, 602 U.S. ___ (2024)" (2024). - U.S. Department of the Treasury -- "General Explanations of the Administration's Fiscal Year 2025 Revenue Proposals (Green Book)" (2024). - Canada Revenue Agency / Department of Finance Canada -- "Budget 2024: Fairness for Every Generation -- Capital Gains Inclusion Rate Changes" (2024).

• Internal Revenue Code -- "IRC Section 1256 -- Contracts Marked to Market."

• National Bureau of Economic Research (NBER) -- "Taxing Wealth: Evidence from Switzerland" (Brülhart, Gruber, Krapf, Schmidheiny, 2019). - Statistics Norway (Statistisk sentralbyrå) -- "Emigration of Wealthy Individuals Following Wealth Tax Increases" (2023). - Joint Committee on Taxation -- "JCX-22-21: Overview of the Federal Tax System as in Effect for 2021" (2021). - Federal Reserve Board -- "Survey of Consumer Finances (SCF) 2022" (2023). - Tax Foundation -- "Evaluating Proposals to Tax Unrealized Capital Gains" (2023). - ProPublica -- "The Secret IRS Files: Trove of Never-Before-Seen Records Reveal How the Wealthiest Avoid Income Tax" (2021).