This article was originally published on RealTid. Find the interview here (in Swedish).

Due to the unstable political situation in Sweden, it may be a good idea to take out an endowment insurance policy, according to Madelene Gorbutt Hägg from Lombard International Assurance in Luxembourg. 

People who move abroad or repatriate to Sweden may be in need of international endowment insurance. Madelene Gorbutt Hägg, taxation and assurance adviser at Lombard International in Luxembourg, explains the best options. 

She has over ten years’ experience as a corporate and tax lawyer at Nordea Bank, Danske Bank and Lombard International.

Are affluent people moving away from Sweden to a greater or lesser extent?

More are considering leaving Sweden. There is great demand from people, particularly pensioners, wanting to move to Portugal. But there are also many entrepreneurs and wealthy individuals who want to move back to Sweden from the UK due to Brexit.’

Are there more people moving away from or back to Sweden?

It’s 60-40 to Portugal. But those who are repatriating to Sweden from places like London are wealthier.’ 
For people who move abroad but later consider moving back, or for those who believe that Swedish tax rates will be increased in the near future, Madelene recommends unit-linked endowment insurance. 
Three different taxes appear more likely to be increased in Sweden.

What is the likelihood that an inheritance tax will be introduced? 

There is small chance of that happening.’ 

What is the likelihood that tax on capital will be increased?

It depends on which parties end up forming a government. But the Social Democrats want to increase it.’

What is the likelihood that property tax will be increased?

That is not my area of expertise.’

Since the politicians appear unable to agree on a governing coalition, it is currently impossible to predict which taxes will be increased or reintroduced. In this type of political situation, Madelene recommends a foreign endowment insurance policy as the most solid option. She highlights the following advantages of international endowment insurance taken out in Luxembourg:
  • Possibility to invest in assets that are not normally available in Sweden, such as private equity funds.
  • Easier, more advantageous inheritance process: An endowment policy with a beneficiary provision is not included in the insured’s probate estate. The policy value plus one per cent passes tax-free to the beneficiary. Swedish inheritance regulations cannot be circumvented with endowment insurance, although some appellate court decisions have reduced the inheritance portion. 
  • Convenient if the insured and/or beneficiary live in different countries.
  • Possibility to use endowment insurance as security for loans.
  • Policy growth and return, as well as policy dividends, are not taxed. Policy assets are taxed at an effective yield tax rate, currently 0.447 per cent.
  • Convenient for people who are moving to/from Sweden for a period of time and who plan to leave/return when tax rates in Sweden have changed.

It is particularly advantageous for those who move to Portugal. There is no yield tax in Portugal, although capital gains are taxed at a rate varying from just over 11 per cent to nearly 30 per cent, depending on age of the policy (policy date).

To open an endowment insurance policy, the insured makes a cash payment or sells his or her securities or assets to the assurance company. In the latter case a 30 per cent capital gains tax is levied. The assurance company now has a legal obligation towards the person who made the cash payment or sold their assets. The insured then pays an annual yield tax of only 0.447 per cent on the contents of the policy portfolio – the same rate as applied to Individual Savings Accounts (Swedish: Investeringssparkonto).

One major advantage in taking out a policy with an international company based in Luxembourg is the country’s unique policyholder protection, which is one of the strongest in Europe. Under these statutory regulations, the insured’s assets are deposited with an independent custodian bank approved by the Luxembourg Insurance Commission. The customer’s assets are separated from the assurance company and from the bank’s shareholders and creditors. This policyholder protection is unlimited, as compared with the Swedish deposit guarantee scheme which guarantees amounts up to €100,000. 

An international unit-linked endowment insurance policy at Lombard International costs around 0.2-0.5 per cent (for the insurance contract), depending on various factors such as the volume and composition of the underlying portfolio. There are several alternatives with respect to management of the policy assets, with bank fees varying from 0.1 per cent to 1.5 per cent depending factors such as which bank is chosen, level of commission generated, whether the insured or the bank manages the assets, and whether the fee is fixed or variable. Several European countries, including Spain and England, prohibit policyholders from managing their own assets. This is to prevent policyholders from exerting influence over the investment of their assets. Portugal does not have clear regulatory provisions in this area. 

Comparison can be made with Avanza. An endowment policy at Avanza costs SEK 0. SEK 1,000 and a yield tax reserve are locked in for one year. Policyholders are only allowed to buy listed securities or any of the 1,300 funds offered by Avanza. Commission is then added (or a fund fee if the insured is invested in funds), as well as a fee designed to compensate for the fact that 101 per cent of the policy assets are always paid out upon disbursement. Commission varies from a fixed SEK 0-99 per trade to 0.01-0.25 per cent per trade, depending on the selected commission scheme. 

An Avanza endowment insurance policy is therefore a much less expensive alternative, but it lacks some of the advantages of an international endowment policy. The Swedish endowment insurance model is not approved in some European countries, and it is impossible to move to certain countries (such as England or Spain) without suffering negative tax consequences. Because it is registered in Sweden, Avanza will deduct yield tax despite the fact that the policyholder has moved abroad, but there is a risk that the assets will also be taxed as an ordinary account in e.g. England or Spain. The insured would then be subject to double taxation. 
Naturally, the annual effective yield tax rate will be higher if the government borrowing rate increases. It appears, though, that the 2019 yield tax rate will be on a par with the 2018 rate. The government borrowing rate is set each year on November 30th and forms the basis for the yield tax rate. The government borrowing rate this year is 1.49 per cent.

Number of people leaving Sweden for Portugal

In 2008: 230 people moved from Portugal to Sweden; 90 moved from Sweden to Portugal. 
Last year: 376 people moved from Portugal to Sweden; 777 moved from Sweden to Portugal. 
Net migration from Sweden to Portugal has increased over the past four years.

Number leaving the UK for Sweden

In 2008: 4,142 people moved from the UK (including Northern Ireland) to Sweden; 3,612 moved from Sweden to the UK. 
Last year: 4,467 people moved from the UK to Sweden; 3,140 moved from Sweden to the UK.
The trend here is opposite to the Portugal trend. More and more Swedes have chosen to return to Sweden from the UK over the past three years. 

About Madelene Gorbutt Hägg
Raised in Söderkulla and Persborg-Rosengård in Malmö, she has over ten years’ experience as a corporate and tax lawyer. She started her career at the Legal Secretariat at the Swedish Ministry for Foreign Affairs in Stockholm. Her work at the Ministry brought her to Luxembourg over ten years ago. She earned her Bachelor and Master’s degrees at Linköping University’s International Law Programme. 

Madelene Gorbutt Hägg
Senior Wealth Planner - Relationship Manager
Lombard International Assurance