TLDR : Buying a yacht converts liquid financial wealth into a lifestyle asset that is costly to maintain and difficult to sell. Borrowing can preserve investments and avoid certain taxable disposals, but it also creates exposure to interest rates, financial markets and the lender. The right decision is not about maximising the apparent return: it is about funding the enjoyment of the yacht without losing the ability to weather a difficult year, seize an opportunity or change course.

When a Lifestyle Purchase Becomes a Wealth Management Decision

A multimillion-euro fortune makes certain purchases seem readily affordable. A second home, an art collection or a yacht may be acquired without calling the owner’s solvency into question. Yet these purchases share a defining characteristic: they convert readily available capital into an asset that cannot be sold instantly, or at a predictable price. A yacht brings an additional consideration: substantial recurring expenses, even when the vessel is seldom used.

This is precisely why I find the purchase of a yacht worth examining from a financial perspective. The enjoyment a yacht provides does not need to be justified by an investment return. How it is paid for, however, affects the owner’s ability to invest elsewhere, deal with unforeseen circumstances or maintain investment positions through a market downturn. Substantial wealth does not eliminate the need to choose between competing uses of capital; it simply makes those trade-offs less apparent.

Consider a family with €12 million in financial assets looking to purchase a yacht for €2.8 million. The vessel represents almost a quarter of its investment portfolio. Assume annual ownership costs of €280,000, equivalent to 10% of the purchase price, covering such items as crew, berthing, maintenance, insurance, consumables and technical work. Over ten years, the owner would therefore spend a further €2.8 million on running the yacht, even if its purchase price remained unchanged. The total commitment would reach €5.6 million, before allowing for exceptional repairs or proceeds from a future sale. These annual costs are illustrative, but they show why the financing decision cannot be reduced to the asking price.

Paying Cash: Independence at the Expense of Invested Capital

Paying cash offers one advantage that is difficult to quantify: once the purchase is complete, no lender can demand early repayment or additional collateral. Being debt-free may be an entirely rational choice for an owner who values peace of mind, holds substantial cash reserves or does not wish to make ownership of the yacht subject to a lender’s decisions. The annual running costs, however, still have to be met.

The calculation changes when the money needed is invested for the long term. Suppose the €12 million is held in a Luxembourg life insurance policy, comprising €7 million in original contributions and €5 million in unrealised gains. To receive €2.8 million net, the policyholder may need to withdraw more than that amount, because the portion attributable to gains may be taxable. Under our modelling assumptions, applying an illustrative tax rate of 24.7% to that portion produces an immediate tax liability of approximately €321,000.

That tax cost is immediate. The opportunity cost accumulates over time: every euro withdrawn ceases to earn future investment returns. The €280,000 in annual ownership costs must then be paid, potentially through further policy withdrawals, which may also trigger tax. Assuming the remaining investments deliver a net annual return of 5%—a modelling assumption, not a promise of performance—the life insurance policy would be worth approximately €10.40 million after ten years. Taxes arising from withdrawals to fund the purchase and running costs would total almost €762,000. The overall cost of the arrangement over ten years would exceed €6.3 million.

This does not mean that paying cash is the wrong choice. It avoids debt and removes the need to negotiate with a bank. But it may force the sale of investments at a time when the owner would prefer to retain them. In this situation, the true cost of the purchase includes both the tax triggered and the years of foregone compounding.

An Amortising Loan: Preserving Investments While Funding Repayments

A conventional bank loan appears to offer a straightforward solution: rather than withdrawing €2.8 million from the portfolio at the outset, the buyer borrows the money and repays it over time. Over ten years, at a fixed interest rate of 4%, a loan of this size entails annual repayments of approximately €340,188, including a total of €602,000 in interest over the term. The yacht’s ownership costs, discussed above, must still be added.

This arrangement works well when the family has enough recurring income to meet repayments without drawing on its investments. In that case, the loan genuinely preserves the portfolio. Conversely, if the loan instalments and yacht operating costs are funded through successive withdrawals from the same life insurance policy, the invested capital is gradually depleted. The benefit of avoiding a sale on day one diminishes, while some of those withdrawals also give rise to tax. The total outlay therefore approaches €7.2 million over ten years.

Using the same assumptions for returns and withdrawals, the policy withdrawals needed to service the debt and meet the yacht’s running costs would generate approximately €965,000 in tax. After ten years, the policy would be worth €10.44 million, only marginally more than under the cash-purchase scenario. The outcomes are so similar because the repayments are being funded by the financial portfolio itself. The results would differ if repayments came from independent sources of income.

The advantage of an amortising loan remains clear: the outstanding balance falls with each payment and disappears at maturity. That predictability comes at a cost, but avoids a single repayment of several million euros on a fixed date. For many wealthy families, the certainty of that repayment schedule matters as much as its price.

Lombard Lending: Borrowing Against Assets Instead of Selling Them

There is a third option, often worth considering when the portfolio is sizeable, liquid and sufficiently diversified. Under a Lombard loan, a bank advances funds against a pledge of eligible financial assets. The owner remains invested: there is no need to surrender part of the life insurance policy to raise the required cash. Instead, borrowing is secured against a portion of the policy’s value, on terms negotiated with the lender.

The benefits extend beyond simply avoiding a sale. Retaining investments can preserve an asset allocation developed over many years, defer the realisation of capital gains and leave capital positioned to take advantage of future opportunities. Depending on the agreement, a Lombard facility may also allow successive drawdowns, with principal repaid at maturity. This flexibility is why I regard it as a genuine alternative to paying cash or taking out an amortising loan, rather than merely a cheaper form of borrowing.

Return to our family. It borrows €2.8 million to purchase the yacht, then gradually draws on the same credit facility to fund the €280,000 in annual running costs. Assume a 3% interest rate, with interest capitalised—added to the outstanding debt instead of being paid as it accrues. The entire €12 million life insurance portfolio remains invested and, assuming the same 5% annual growth, would reach approximately €19.55 million after ten years. The outstanding debt, meanwhile, would have risen to almost €7.04 million, comprising €5.6 million in funds actually borrowed and around €1.44 million in accrued interest.

That would leave net financial wealth of €12.51 million after deducting the debt. The difference compared with paying cash or taking out a conventional loan is substantial. It arises mainly because the investment portfolio has remained intact and no tax has yet been triggered by policy withdrawals. Even after allowing for tax, however, this option remains more favourable, as the following comparison shows.

What the Comparison Shows—and What It Does Not

To avoid confusing the value of an investment portfolio with wealth that is actually available, three factors must be considered: the outflows incurred over ten years, the debt still outstanding at the end, and the amount remaining once that debt has been repaid.

Figures have been rounded to make the mechanics easier to follow. The first two arrangements are fully settled after ten years; the Lombard loan must still be repaid or refinanced.

After 10 years	Cash purchase	Amortising loan	Lombard loan
Yacht financing	€2.8m net withdrawal	€2.8m loan	€2.8m loan
Ownership costs	€280k p.a. via withdrawals	€280k p.a. via withdrawals	€280k p.a. via the loan
Total interest	None	€0.60m	€1.44m
Tax on withdrawals¹	€0.76m	€0.96m	€0
Life insurance value at year 10	€10.40m	€10.44m	€19.55m
Debt after 10 years	€0	€0	€7.04m
Total cost	€6.36m	€7.17m	€7.03m
Net of debt²	€10.40m	€10.44m	€12.51m
Net after Lombard repayment³	€10.40m	€10.44m	€11.18m

¹ Tax on withdrawals made from the policy; no withdrawals are made from the life insurance policy under the Lombard scenario before the facility is settled. ² Outstanding debt deducted. ³ Lombard loan repaid through a withdrawal from the policy: approximately €1.33m in additional tax. This final figure does not represent a refinancing, which would leave the debt outstanding.

The key point is not which column comes out ahead. With a cash purchase, taxes and lost compounding have already reduced the portfolio. With a conventional loan, the amount borrowed has been repaid through successive withdrawals. Under the Lombard arrangement, the investments have continued to grow, but the bank still has a substantial claim. Comparing a €19.55 million life insurance portfolio with one worth €10.40 million without deducting the €7.04 million debt would be tantamount to presenting a balance sheet without its liabilities.

Lombard Lending Is Attractive—Provided There Is an Exit Strategy

The €7.04 million debt does not simply disappear after ten years. If the lender agrees to renew the facility, the owner can keep the portfolio invested and defer withdrawals further. But renewal is neither an entitlement nor a certainty. The interest rate, eligible assets, collateral requirements and repayment terms may all be revised.

If, instead, the family elects to repay the loan by withdrawing funds from the life insurance policy, it will need to withdraw more than the amount owed: part of the withdrawal represents taxable gains. Approximately €1.33 million would therefore be paid in tax, leaving €11.18 million in the policy.

Collateral is the other crucial consideration. The initial €2.8 million borrowing represents 23.3% of the portfolio. After ten years, debt of €7.04 million against assets worth €19.55 million produces a loan-to-value ratio of 36%. A 30% fall in the underlying investments at that point would increase the ratio to approximately 51.4%, without reducing the debt—hence the appeal of a potentially lower-returning but more defensive allocation. Depending on the contractual thresholds and the quality of the assets held, the bank could demand additional collateral, partial repayment or a reduction in exposure. Pledged assets are not as freely available as unencumbered assets.

The difference between the portfolio return and the borrowing rate must therefore never be treated as guaranteed income. If the interest rate were 3.5% throughout the period, the final debt in our model would be approximately €279,000 higher. And if markets fell just as additional collateral was required, the bank could force asset sales at an inopportune moment. This combination of financial and contractual risk is the real price of Lombard lending’s flexibility.

The Right Financing Is Measured by the Freedom It Preserves

None of these three approaches is universally preferable. Paying cash suits an owner with surplus liquidity who places a high value on having no debt commitments. An amortising loan becomes more attractive when repayments can be funded from income independent of the investment portfolio. Lombard lending can be exceptionally effective for an investor with diversified assets, an adequate margin of safety and a credible repayment plan.

A blended approach can be equally worthy of consideration: fund part of the purchase in cash, limit the borrowing and retain a genuinely unencumbered reserve to cover the yacht’s operating expenses. The most appropriate structure also depends on the policyholder’s tax position, the legal and contractual features of the life insurance policy, financing costs, the currency of the investments and the obligations associated with the yacht. A Luxembourg policy does not, in itself, guarantee favourable tax treatment; that depends, in particular, on the policyholder’s tax residence and the nature of any withdrawals.

In my view, buying a yacht is a successful luxury purchase only when it remains a choice. The family must be able to continue sailing, seize an investment opportunity, weather a market downturn or sell the vessel without allowing a loan maturity to dictate its entire financial position. The essential principle is that financing should serve the life one wishes to lead—not the other way around. Preserving invested capital can be an excellent strategy. Preserving the freedom to access it when you choose is, to my mind, even more important.

Enjoyed this article? Subscribe to the newsletter.

Disclaimer: This article provides general wealth management analysis only. It does not constitute personalised investment advice, tax or legal advice, or an offer of credit. All figures are based on simplified assumptions; neither the 5% investment return nor the borrowing rates are guaranteed. Lombard lending carries risks relating, in particular, to markets, collateral, interest rates and refinancing. The precise terms depend on the relevant agreements, the borrower’s tax circumstances and the lender’s approval.