Effective yield tax for life assurance - 0.447% for 2018
The Swedish State Borrowing rate for 30 November 2017 was announced by the Swedish Debt Office (Sw. Riksgälden) on 23 November amounting to 0.49%. This implies that the effective tax rate for life assurance policies for fiscal year 2018 amounts to 0.447%.
Life assurance policies (non-pension) have since the introduction in 1994 been subject to a standardised annual yield tax. As from 2012 a comparable investment model, the investment savings account (ISK), was introduced with similar standardised taxation.
Both investment models are taxed with standardised taxation based on assumption that the return for the fiscal year is equal to the Swedish state borrowing rate as of 30 November of the previous year. This flat rate is taxed at 30% (Yield Tax/ Capital Income Tax).
For fiscal year 2018 the Swedish State Borrowing rate for 30 November 2017 was announced by the Swedish Debt Office (Sw. Riksgälden) on 23 November, amounting to 0.49%
On 30 November the Swedish parliament decided on the Swedish government’s proposal to increase the previous calculation for the base of taxation from State borrowing rate + 0.75% to the State Borrowing rate + 1% for both life assurance and investment savings account. The increase of the base for calculation with the additional 0.25% will come into force per 1 January 2018. The minimum threshold for taxation of life assurance and investment savings accounts that was introduced per 1 January 2016 of 1.25% is still valid.
The effective tax rate for life assurance for 2018 is therefore 0.447% (1.49% x 30%) on the value of the life assurance per 1 January 2018 + full value of premiums paid until 30 June 2018 and half value of premiums paid between 1 July and 31 December 2018.
Even though the change of legislation implies a slightly higher effective tax rate of approximately 0.07% for 2018 we still consider life assurance as a very attractive alternative investment model compared to regular portfolio investments as Swedish interest rates remain low.
Written by Emilia Weijola, Senior Wealth Planner