The Norwegian budget proposal for 2018 includes a proposal to change the taxation of life assurance. The new legislation is proposed to enter into force on January 1st, 2019. Life assurance continues to offer many advantages for Norwegian investors.
The aim of the proposed changes is to ensure consistent tax treatment of investments held through different investment structures.
Life assurance with a standard 1% life cover will be taxed similar to income from an investment fund under section 10-20 of the Norwegian Income Tax Act. As of 2019 a unit-linked life assurance policy with a standard 1% life cover will thus benefit from a 20% net wealth tax rebate and tax exempt shielding interest to the extent the policy assets are invested in equity.
At surrender/withdrawal the proportional gain related to the equity portion of the policy is taxed as share income with a tax rate of 30.59% (2018) whereas the proportional gain related to other investments will be taxed at the ordinary income tax rate 23% (2018).
For corporate policyholders the tax exemption method applies to the gains portion related to equity under the same conditions as income from investment funds. Income not exempt under the tax exemption framework would be taxable at the corporate income tax rate of 23% (2018).
Where the shares/other securities are over 80% of the investments, the income will be treated fully as share income/other capital income. A partial withdrawal is considered as a realisation for tax purposes and the proportional gain is taxable and any loss deductible.
Transitional rules will apply for existing policies. The equity allocation per 1 January 2019 will serve as a basis for the taxation under the new rules.
Section 5-20 of the income tax act which currently regulates taxation of life assurance will apply only to life assurance contracts with a minimum of 50% life cover in addition to the surrender value or a fixed amount of 100% of the premium in addition to the surrender value.
Other key changes affecting the private investor:
The ordinary income tax rate and corporate income tax rate is reduced from 24% to 23%.
The upward adjustment factor for taxation of share income is increased from 1.24 to 1.33 leading to an effective tax rate of 30.59 % on dividends and capital gains.
The discount in valuation for wealth tax purposes for shares and operating assets as well as associated debt will increase from 10% to 20% (including the equity portion of a 1% life assurance contract)
Life assurance continues to offer many advantages for Norwegian investors:
Tax deferral at policyholder level for all asset classes until payment from the policy
At withdrawal the proportional gains part is taxed at 30.59%/ 23% depending on the composition of the underlying assets (equity portion 30.59%, other income portion 23%)
Single flexible wealth structuring solution capable of incorporating a diversified investment portfolio
Well suited for succession planning with a possibility to create a legacy to transfer to the next generations
Well known structure benefiting from favourable tax regimes in Europe and beyond
The policyholder benefits from Luxembourg’s policyholder protection regime which is one of the strongest in Europe
Transitional period will allow existing policyholders to optimise
Easy reporting - all documentation is provided by Lombard International Assurance, so no need for auditor assistance
Written by Emilia Weijola.
For further information, please contact Marjanne Olesen, Country Manager Norway.