The Swedish State Borrowing rate applicable on 30 November 2016 was announced by the Swedish Debt Office (Sw. Riksgälden) on November 24. The rate is 0.27%. This means that the effective yield tax rate for life assurance policies amounts to 0.375% for 2017.
Life assurance policies (non-pension) have, since its introduction in 1994, been subject to a standardised annual yield tax. In 2012 a comparable investment vehicle, the investment savings account (ISK), was introduced, which is subject to similar standardised taxation.
Both life assurance and ISKs are subject to standardised taxation based on assumption that the return for the fiscal year is equal to the Swedish State Borrowing rate applicable on 30 November of the previous year. This flat rate is taxed at 30% (Yield Tax/ Capital Income Tax).
The Swedish State Borrowing rate applicable on 30 November 2016 was announced by the Swedish Debt Office (Sw. Riksgälden) on November 24. The rate is 0.27% and this figure is base for what determines the effective yield tax rate for fiscal year 2017.
Due to the minimum 1.25% threshold for the taxation of life assurance and investment savings accounts, which was introduced on 1 January 2016 and which we described in our Insight of 13 September this year, the effective tax rate for life assurance policies and ISKs is 0.375% for 2017.
For life assurance, this effective tax rate of 0.375% (1.25% x 30%) is applied to the value of the policy as at 1 January 2017 plus the full value of premiums paid until 30 June 2017 plus half of the value of premiums paid between 1 July and 31 December 2017.
The new effective rate is lower than the effective taxation rate for life assurance in 2016, which amounted to 0.42%.
As Swedish interest rates remain low, we continue to consider Swedish life assurance as a very attractive alternative solution to regular portfolio investment.
By Andrea Szymanski, Senior Wealth Planner