Přehled trhů
Prepare your portfolio for year-end: rebalancing and tax considerations
Key takeaways
- Year-end is the right moment to check allocation and rebalance back to target weights if needed.
- In the Czech Republic a 3-year holding period applies — a sale after three years from purchase is exempt from income tax on capital gains.
- Realising losses (loss harvesting) can reduce your tax liability, but factor in transaction costs.
- Dividends are subject to 15% withholding tax in the Czech Republic — consider whether an accumulating fund is more advantageous for your horizon.
- Rebalancing and tax optimisation only make sense as part of a long-term strategy, not as repeated timing attempts.
Year-end is a natural point to review your portfolio — not because the new year is approaching, but because in the Czech Republic important tax rules are tied to the calendar year-end.
Rebalancing: back to target
If equities rose strongly this year, their weight in your portfolio likely exceeds the target allocation. Rebalancing means selling part of the equities (or adding bonds or cash) to return to planned weightings. The result is mechanically selling expensive and buying cheap — exactly the opposite of performance chasing.
Tax considerations in the Czech Republic
- Holding period (3 years): selling ETFs or shares more than 3 years after purchase is exempt from income tax — specifically from capital gains tax. Check which positions meet the threshold.
- Loss harvesting: if you hold positions in a loss, selling them before year-end can reduce your tax base from realised gains. Factor in transaction costs and rules on repurchase.
- Dividends: dividends from ETFs are subject to 15% withholding tax in the source country (or per treaty) and further taxation in the Czech Republic. More in the article ETF taxation in the Czech Republic.
Accumulating vs. distributing fund
Those who prefer not to deal with dividend taxation on an ongoing basis may favour an accumulating fund, which automatically reinvests dividends. More in the article accumulating vs. distributing ETFs. For long-term investors in the Czech Republic, the accumulating class is generally simpler from a tax perspective.
What to avoid
Year-end is not a reason for large portfolio shifts just because "the year is ending". Rebalancing and tax considerations are tools — not goals. If your allocation matches your plan and the tax situation is clean, there is nothing to do. Fewer actions is often better.
FAQ
What is the holding period for ETFs in the Czech Republic?
If you hold ETFs (or shares) for more than 3 years from purchase and sell, the capital gain is exempt from personal income tax. Verify the conditions in the current text of the law — the rules may change.
What is loss harvesting?
Selling losing positions before year-end to reduce the tax base from realised gains. It only works on actual sales — unrealised losses do not reduce tax liability. Factor in transaction costs.
When to rebalance a portfolio?
Typically once a year or whenever weights deviate from the target allocation by more than 5–10%. Year-end is a logical moment because you can simultaneously consider the tax implications of any sale.