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The Swedish Government announced on 27 March its intention to adjust the standardised taxation rules for life assurance policies (non-pension) and investment savings accounts (ISK). It is presumed that the new adjusted rules will enter into force in 2016.

Since 1994 life assurance policies have been subject to standardised annual Yield Tax. Similarly, since 2012, individuals can opt for a standardised income taxation of assets retained in investment savings accounts.

For both alternatives a standardised taxation model is applied which assumes that the return was equal to the Swedish Government borrowing rate as at 30 November the previous year. This flat rate is taxed at 30% (Yield Tax /Capital Income Tax). The Swedish Government borrowing rate is based on the average interest rate on Government bonds with a duration of at least 5 years and is continuously set by the Swedish Debt Office (Riksgälden), the latest at the very low level of 0.20% (17 April 2015).

A moderate increase in rates

The Government’s intent is to ensure that standardised taxation can be maintained even with extremely low interest rates. Therefore, the proposal is to increase the assumed rate of return by 0.75 percentage points and to introduce a standardised minimum rate of return of 1.25% from 2016 onwards.

If the Government’s proposal is implemented and the borrowing rate at the end of November 2015 is less than 0.5%, a life assurance policy (non-pension) will effectively be taxed with (1.25 x 0.30 =) 0.375% for the 2016 fiscal year. Furthermore, if the borrowing rate amounts to, for example, 0.90%, such a policy will be taxed ([0.90 + 0.75] × 0.30 =) 0.495% (equivalent to the 2012 level of taxation).

As Swedish interest rates remain low, we continue to consider the standardised life assurance policy taxation to be a very interesting alternative to regular portfolio taxation during the next years.

We are pleased that the Government’s proposal, despite introducing slightly higher levels of taxation, is a clear pledge to uphold the unique Swedish model of standardised taxation for life assurance.

Please do not hesitate to contact Daniel Starberg or your usual Lombard International Assurance representative if you have any queries or require further information.