The Swedish equivalent of an ISA as a model for Ireland?

D

Duke of Marmalade

Registered User
Messages
5,645
@Brendan Burgess The obsession in this thread with ETFs and Deemed Disposal is disappointing; this will not put Simon's name down in history as SSIAs did for Charlie McCreevey.

Simon mentioned the Swedish system. I consulted Gemini (who might be wrong) but it is very interesting.
Basically your ISK account is tax free on its activity i.e. no CGT or dividend tax.
But the government charge an annual fee on the ISK account itself.
That fee is 30% x (1% + Government borrowing rate).
The first €30k is completely tax free.
The Swedish version leaves it to the punter to pay the tax, we should try and make sure all tax aspects are handled by the providers/Revenue.

There are no limits on the size of your ISK but even the 30% fee might soften your cough.
Seems interesting.

He also mentioned the Canadian system but I leave that to someone else.
He did mention Deemed Disposal but that is a minefield to be avoided IMHO.
 
Last edited:
More on the Swedish system. The great bulk of the Swedish ISKs are invested in equities. The effect of the Government charge on the ISK makes cash holdings inefficient even though the interest is tax free. This is in contrast with the UK ISA where the government are trying to reduce the amount going into cash.

40% of ISKs' investments are in Swedish companies.
Simon Harris said:
“We need to make that money work, not just for the country, not just for the economy, but for our SMEs, but also crucially for people, for families, for young people,”
Click to expand...
How will he ensure that significant amounts of whatever he comes up with will be invested in SMEs or indeed in the Irish economy at all?
 
This seems more like a wealth tax if I understand it correctly.

The first 300,000 SEK is tax free i.e. €30,000

After that, your investments are taxed at about 1% (0.888% in 2025 and 1.065% in 2026)

So after the €30k tax-free, if you have €100k in a fund, you pay €1,000 tax.

If that falls in value to €50k the following year, you pay €500 tax anyway

If it increases to €200k, you pay €2,000 tax.

It would certainly discourage putting money on deposit. If I am saving for a house and have €100k in AIB earning 0.2% interest - I will earn €200 and pay €1,000 in tax.

If I buy shares or property, I will be far better off.
 
A big advantage is its simplicity. The institution deducts the tax every year. The tax payer doesn't have to make any returns.

A disadvantage is that it's quite regressive after the €30k tax-free. But maybe that is ok.

Someone with €10m pays the same rate, more or less, as someone with €100k. ( 1% vs 0.7%)
 
Brendan Burgess said:
A disadvantage is that it's quite regressive after the €30k tax-free.
Click to expand...
Uh, it's a flat tax past the threshold (so neutral on the progressive/regressive axis).

That isn't regressive. It is actually progressive, since the tax rate rises monotonically.

It just isn't as progressive as other things.
 
Brendan Burgess said:
A disadvantage is that it's quite regressive after the €30k tax-free. But maybe that is ok.
Click to expand...
Yes and I have mentioned elsewhere that this is why the Canadian system is a better (and politically safer) option. Some of my aristocratic friends would fill their boots with, for example high dividend stocks like Phoenix, Swedish ISKs.
 
I really like this on a number of levels.
1. It’s simple
2. It is particularly beneficial to lower wealth individuals who we know are less likely to invest.
3. It doesn’t put up pointless barriers for higher wealth individuals investing for the sake of it but also doesn’t subsidize them
4. It shares the generation of additional wealth for already wealthy individuals with the state on an ongoing annual basis.
5. It actively encourages greater risk taking.

The administration underneath is critical in my opinion. If it can be invested in a Vanguard passive ETF at 0.1% TER. Amazing. If I am forced to pay some broker 0.5% PA to explain diversification & provide me a statement of suitability, Irish life 1% to do the same thing as Vangurd and a further 0.25% to manage the simple tax calculation then it quickly becomes useless.
 
Last edited:
Brendan Burgess said:
A disadvantage is that it's quite regressive after the €30k tax-free
Click to expand...
Doesn’t every single tax we have stop increasing in percentage terms at a certain threshold? For incomes it’s €70k. For CGT it’s €1,270. For Exit Tax it’s €0.

An indefinitely progressive curve adds complexity. Also if you say the rate essentially converges on 1% per year for higher asset holders as the €30k tax free becomes irrelevant. Assume 7% LTA on investments. That’s equivalent to a 14% effective tax rate on unrealised gains taken straight to the exchequer every single year. I’m pretty confident the Uber wealthy already have tax structures which are considerably more efficient than this when it comes to unrealised gains.
 
Zion2022 said:
f it can be invested in a Vanguard passive ETF at 0.1% TER. Amazing. If I am forced to pay some broker 0.5% PA to explain diversification & provide me a statement of suitability, Irish life 1% to do the same thing as Vangurd and a further 0.25% to manage the simple tax calculation then it quickly becomes useless.
Click to expand...
Exactly. Any unavoidable costs are effectively a tax.

If a tax is to be paid, then make it go to the state rather than into admin fees.
 
Zion2022 said:
If I am forced to pay some broker 0.5% PA to explain diversification & provide me a statement of suitability, Irish life 1% to do the same thing as Vangurd and a further 0.25% to manage the simple tax calculation then it quickly becomes useless.
Click to expand...

That is brilliant.
 
If such a fund were introduced, it seems it'd be much better suited to investments at the higher end of the risk spectrum.

One would be paying an annual fee approaching 1% for higher investment amounts, irrespective of performance; and even when losses are incurred.

If there were an upper limit on the amount invested, I'd likely use an account like this on the portion of my portfolio allocated to higher risk growth stocks.

When investing in consumer staples or utilities, for example, long term returns are expected to be a few percentage points below the average market returns and well below the potential returns of a growth oriented portfolio.

Much better having your stocks that might double in a few years in an account like this as your potential CGT bill savings would be significant - though your ability to carry forward losses, if incurred, would be removed.

I wouldn't be likely to hold, for example, Nestle in a product like this. This example offers lower expected returns than many at the best of times and has been falling over the past 3 years.

I suppose the 1% charge will have been lower than the income tax incurred by someone on dividends if they were a 40% tax payer - so whether we need to be strategic in choosing the investments in such a structure all depends on whether the product has deposit limits.

This structure would be a bad move if Europe were to face a lost decade, the likes of what Japan experienced in the past. But that's unlikely and all part of the risk you have to take.
 
The Swedish Model is very interesting. Regard the 1% "wealth" tax as an AMC and think ETFs with say .15% charges. You now have an unlimited gross roll-up tax free vehicle with AMC 1.15%. Or if you are allowed DIY the AMC is just 1%.
 
FinanceDublin.com said:
Originally, the standard tax on ISKs consisted of 30 percent of the government borrowing rate. In 2016, it was decided to increase the basis for the tax to the government borrowing rate plus 0.75 percentage points, and in 2018 the basis was raised further. In 2024 the standard tax amounts to 30 percent of the government borrowing rate plus 1 percentage point while since 2016 there has been a floor for the interest base that amounts to 1.25 percent.
Click to expand...
Now that doesn't sound so good and worryingly there is no stability in the "wealth" tax. But there are boring but solid high dividend life company shares where 1.25% tax would be far superior to 40% + USC.
 
I am trying to understand the Swedish ISK.

It applies a flat 30% income tax on the "standard income".

Standard income is an assumed notional income from the assets, not the actual incomes.

Standard income is (the capital base) * (Govt borrowing rate +1%)

Is thre Govt borrowing rate the 10y bond yield?

Standard income rate in Ireland would be 3% 10yr bond yield late 2025 + 1% = 4%.

It assumes that the ERP is 1%?

So savers pay 30% income tax on 4% of the value of their assets?
 
Sarenco said:
This article gives further detail on that structure -
Click to expand...

That is an excellent article

In its response to the European Commission’s call for evidence on SIAs the Confederation of Swedish Enterprise downplays the importance of reduced tax in Sweden’s success but champions simplifying tax. It writes in its submission, ‘Experience from Sweden suggests that investment and savings accounts should primarily focus on simplifying households access to attractive investment opportunities by minimizing administration, simplifying tax procedures... The issue of tax incentives is often raised when discussing a potential EU savings and investment account. The Swedish experience suggests that they are not necessary. Instead, simplifying the tax process is likely to be a more important factor for encouraging uptake.’

...

They authors of the report write that the effective tax rate for savings on an ISK since the 2018 changes is estimated at just over 23%, this compares favourably to an effective rate of just under 29% for non ISK investments. It quotes the Swedish Government’s own justification for ISKs rightfully having a lower tax rate: “The Government believes that the lower effective tax rate is justified because households’ longterm savings in directly owned financial assets should be encouraged.
 
You must log in or register to reply here.
Back
Top