On 25 November, the Swedish Parliament voted to slightly adjust the standardised taxation rules for life assurance policies (non-pension) and investment savings accounts (ISK). The new adjusted tax legislation will be effective as of 2016. 

Since 1994, life assurance policies have been subject to a standardised annual yield tax. Similarly, since 2012, individuals have been able to 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 for the fiscal year is equal to the Swedish government borrowing rate as of 30 November of 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). During 2015, the government borrowing rate has occasionally fallen below 0.20% (April 2015).

A moderate increase in rates from 2016
The purpose of the adjustment is to ensure that a fair level of standardised taxation may be maintained even with extremely low interest rates. Therefore, the new tax rules increase the assumed rate of return by 0.75 percentage points and introduce a standardised minimum rate of return of 1.25% from 2016 onwards. 

As of 30 November 2015, the Swedish government borrowing rate is set to 0.65%. As a result, a life assurance policy (non-pension) will effectively be taxed with ([0.65 + 0.75] x 0.30 =) 0.42% for the 2016 fiscal year. Thus, in spite of the adjustment, the effective tax rate for 2016 will still be lower than the tax for 2012 (0.495%) when the investment savings account was introduced. 

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 coming years. Despite introducing slightly higher levels of taxation, we are pleased by the Parliament’s decision because it is a clear pledge to maintain the unique Swedish model of standardised taxation for life assurance. As illustrated by the chart below, the effective tax charge for 2016 is still very attractive.

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