Before You Start
- Basic understanding of ETF investing and capital gains tax in your country
- Access to a European brokerage account (e.g., Trade Republic or DEGIRO)
- Up-to-date transaction history for your ETF investments
- Awareness of your country’s tax-loss harvesting rules (wash sale rules, reporting deadlines, etc.)
Time needed: 45–90 minutes for your first harvest
What you'll need: Internet access, brokerage account credentials, spreadsheet or tax-tracking tool
Tax loss harvesting is a powerful strategy for European ETF investors looking to optimise their tax bill. By selling ETFs at a loss, you can offset capital gains from other investments—reducing your annual tax liability. But Europe’s patchwork of tax rules and the unique structure of ETFs listed on EU exchanges create both opportunities and complications. This tutorial will walk you through the essentials, practical steps, and pitfalls to avoid, using real-world examples and instructions for brokers like Trade Republic and DEGIRO.
What Is Tax Loss Harvesting and Why Does It Matter in Europe?
Tax loss harvesting means selling an investment that’s currently worth less than you paid for it, thereby “realising” a capital loss. In most European countries, you can use these realised losses to offset capital gains—reducing the amount of tax you owe.
- Example: You bought €10,000 of the iShares Core MSCI World UCITS ETF (IE00B4L5Y983) in January. In November, it’s dropped to €8,000. By selling now, you realise a €2,000 loss. If you also realised €2,500 in gains from selling another ETF, you can offset those gains—potentially saving hundreds of euros in tax.
The specifics—such as whether you can offset losses against gains from other asset classes, or carry losses forward—depend on your country. In the EU, there are no unified rules: each country sets its own approach. However, most allow some form of tax loss offsetting.
Pro Tip
Tax loss harvesting is most valuable for investors with realised capital gains in the same tax year. If you’re a long-term buy-and-hold investor with no plans to sell, this tactic may be less relevant for now.
Step 1: Check If Tax Loss Harvesting Applies to You
What to do: Review your country’s capital gains tax rules. Look for:
- Are ETF capital losses deductible against capital gains?
- Can you carry losses forward to future tax years?
- Are there any “wash sale” rules (restrictions on rebuying the same ETF)?
Why it matters: Some countries (e.g., Germany, France, the Netherlands) allow ETF losses to offset ETF gains, but the rules differ. For example, Germany allows losses to offset only investment income, and you can carry them forward. Some countries restrict how quickly you can repurchase the same security.
What can go wrong: If you harvest a loss but immediately repurchase the same ETF (or a “substantially identical” one), you might violate your country’s wash sale rules, invalidating your loss for tax purposes.
Read more about optimising capital gains taxes in Europe for deeper country-by-country guidance.
Step 2: Identify Loss-Making ETFs in Your Portfolio
What to do: Log in to your brokerage account and export your transaction history. Filter for ETFs currently trading below your purchase price.
- Trade Republic: Open the app → Tap “Portfolio” → Tap an ETF → Check “Performance” for your gain/loss.
- DEGIRO: Log in → Go to “Portfolio” tab → View “Result” column for each ETF position.
Why it matters: You can only harvest losses on ETFs below your purchase price. Focus on those with meaningful losses (e.g., at least €100), as small losses may not be worth the effort.
What can go wrong: If you sell an ETF at a loss but then repurchase it too soon, you might trigger anti-avoidance rules. Also, make sure you’re not selling a position you want to keep for the long term without a clear plan to reinvest.
Step 3: Sell the Loss-Making ETF
What to do: Place a sell order for the ETF(s) you’ve identified.
- Trade Republic: In the app, tap “Portfolio” → Select the ETF → Tap “Sell” → Enter the number of shares → Confirm the sale.
- DEGIRO: In the web platform, go to “Portfolio” → Click the ETF → Click “Sell” → Enter the quantity → Confirm the order.
Expected outcome: The ETF will be sold, and you’ll realise a capital loss equal to (Purchase Price – Sale Price) × Number of Units.
- Example: You sell 50 shares of iShares Core MSCI Emerging Markets UCITS ETF (IE00B4L5YC18) bought at €25 each for €20 each. Your realised loss is €250.
Why it matters: Only realised losses count for tax purposes. Paper losses (unrealised) are irrelevant until you sell.
What can go wrong: Selling may trigger transaction fees (check your brokerage’s fee schedule). If you sell in a volatile market, prices may move quickly—double-check your order type (market vs. limit).
Pro Tip
Check if your broker charges extra for selling fractional ETF shares. On DEGIRO, you can only sell whole shares. On Trade Republic, you can sell fractional amounts.
Step 4: Decide If and How to Reinvest
What to do: Decide whether to immediately reinvest in a similar, but not identical, ETF to maintain your market exposure (a “replacement ETF”).
- Example: If you sold iShares Core MSCI World UCITS ETF (IE00B4L5Y983), consider buying the Xtrackers MSCI World UCITS ETF (IE00BK1PV551) instead.
Why it matters: Selling an ETF to harvest a loss can leave you out of the market. By buying a similar ETF, you stay invested while remaining compliant with most EU tax rules, which typically focus on “substantially identical” securities.
What can go wrong: If your replacement ETF tracks the same index and is too similar, your tax authority might still consider it a “wash sale.” Check your local rules, and if in doubt, wait the minimum required period (often 30 days) before rebuying the same ETF.
See our in-depth, country-specific tax loss harvesting guide for more on the wash sale rule and ETF substitutions.
Step 5: Record and Report Your Transactions
What to do: Keep a detailed record of:
- ETF name, ISIN, and ticker
- Purchase and sale dates
- Number of units and prices
- Total realised loss
At tax time, include these details in your capital gains tax filing. Most European countries require you to report both gains and losses on your annual tax return.
Why it matters: Accurate records ensure you can prove your losses if audited. Some brokers (like DEGIRO) provide downloadable tax reports; others (like Trade Republic) require manual tracking.
What can go wrong: Failing to keep documentation could mean your loss is rejected by tax authorities. If you use multiple brokers, consolidate your records for each ETF sale.
Pro Tip
Consider using a portfolio tracker or tax reporting tool (like Portfolio Performance or DivvyDiary) to automate your tax documentation. For more on automating your tax workflow, see this automation guide.
Common Mistakes
- Violating wash sale rules: Repurchasing the same ETF (or a too-similar one) too soon can invalidate your loss. Always check your local regulations.
- Not offsetting the right gains: You can only offset capital losses against capital gains (not income) in most countries.
- Forgetting broker fees: High transaction costs can erode any tax benefit, especially for small positions.
- Poor record-keeping: Incomplete documentation can lead to headaches at tax time and possible rejection of your deduction.
- Over-harvesting: Selling too aggressively for tax reasons may disrupt your long-term investment plan.
Next Steps
- Review your ETF portfolio every November or December to spot tax loss harvesting opportunities before year-end.
- Stay up-to-date with your country’s tax rules—these can change, especially with growing EU interest in harmonising capital gains tax (see this article on the EU wealth tax debate).
- Refine your process with automation and robust record-keeping.
- For more on ETF tax optimisation, see our guide on ETF withholding tax.
Disclaimer: This article is for educational purposes only and does not constitute financial advice. Always do your own research and consider consulting a qualified financial advisor before making investment decisions.