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

You are calling it a wealth tax, instead of an income tax, because, I presume, it applies in all years, even where there are no actual dividends or capital gains from the assets.

Okay.

So given a flat 30% tax rate, a 3% 10yr bond yield, and a fixed 1% extra imputed income, the annual tax is 1.2% of the value of the assets.

Okay.
 
It's just so much easier to explain the system to people "You pay 1% of the value of your investments whether they rise or fall". No need to go into detail about Income Tax rates or the government borrowing rate or anything else.
 
It’s an interesting idea. The cut off point will be critical.

€30k pp so €60k for a couple covers a lot of people.

My concerns would be that the 30k for example isn’t inflation linked so it devalues.

But a bigger one would be the ability to use the 1% as a wealth tax so up it to 2% at the end of the year.

I presume money can be put in and out of the scheme or does it just apply to all money people have?
 
faketales said:
But a bigger one would be the ability to use the 1% as a wealth tax so up it to 2% at the end of the year.
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If they rise the charge after a period of underperformance, the scheme will likely end up failing.

There'd be no need for them to rise the fee after a period of outperformance as their tax take would be the same percentage of a bigger pot.

Overall, the scheme would be a more stable tax base for the government - similar to the stability of the UK motor tax system where they tax the same for every car (except for a surcharge on expensive cars for the first 6 years of their life, paid by those who can most afford it). The Irish system, based on emissions, is unstable as the older, high emissions, cars are being scrapped and replaced with newer, low emission, cars (and it's difficult to predict precisely what the average band of new cars for the coming year will be). A different topic altogether but the same premise - the government take from this scheme drops 20% if the average value of stocks drop 20% versus last year whereas, under most other systems, the government take is completely obliterated in falling markets and, to rub salt on the wounds, people are building up losses to offset against future CGT bills.
 
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Sorry I can't get my head around this - I get the 1% - like an AMC, you pay it every year regardless of performance so 100k balance, you pay 1% a year
But what is the 30% rate is this on gains or what? It seems not much lower than current rates
I have read all the posts above and still don't get the 30%, I am missing something basic, sorry!
 
(30% flat income tax ) * (imputed 4% income) = 1.2% "wealth" tax.

The 1.2% is not the official tax rate.

The 30% flat income tax is the official tax rate on the imputed income.

But the 30% flat tax rate times the imputed incomes is equivalent to a 1.2% tax on the stock of assets.
 
I think the Swedish system has a distinct advantage in the Irish context: It's simple for the brokers to implement, not just the retail investor to use. They don't have to keep track of when individual shares were bought and sold and the gains made on them like they do in Germany. It's easy for the investor because the broker has to do all the heavy lifting but Germany is a huge market so it's worth it for them to invest in the infrastructure to have access to the market. In the much smaller Irish market, such an onerous system (for the broker, not the end user) would likely discourage entrants to the market and I wouldn't be surprised if the Swedes deliberately chose this system because their market isn't huge either.
 
The DoF has consistently shown itself to be reluctant to let savers and investors off the hook, so I can see why they prefer a Swedish ISK to a UK ISA structure.

When you see "annual tax of 1%"... it's worth exploring what that would amount to (your mileage varying depending on your situation.)

ISK you can stick in as much as you like. After the tax free allowance of 300,000 SEK (about €28k today) you pay this annual tax that comes in somewhere in and around 1% - it can move depending on government borrowing costs - on the entire fund value over 300,000 SEK.

ISA you can stick in £20,000 (about €23k today) per annum and all the gains are tax free.

On a like-for-like basis, if you invested €23k per annum to an ISA vs an ISK type product for 20 years, getting 8% annual returns in a straight line after fees, your €460k of contributions would translate to €1,137,000 in an ISA type product and €1,011,000 in an ISK type product - about €80k lost to tax and a further €46k of lost investment gains from the tax drag.

In this scenario, it's a tax & drag of 18.6%.

The world doesn't work in straight lines, though. So a year where you are -5%, you could be -6% thanks to the tax (assuming you've a lot saved over the tax free allowance.) That could have material downstream impact on your total "tax & drag" rate.

Overall an ISK strikes me as a wealth tax in disguise while an ISA is a true savings friendly product.

I wouldn't be surprised if the DoF introduces an ISK with both an annual and an upper contribution limit, to give themselves the best of both worlds.

We'll be better off than under the current system, but not as well off as they are in the UK.
 
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Brendan Burgess said:
It's just so much easier to explain the system to people "You pay 1% of the value of your investments whether they rise or fall". No need to go into detail about Income Tax rates or the government borrowing rate or anything else.
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Simplicity will sell a product, yes.

I'm fairly savvy with forms, I would do probate myself, but even I don't look forward to Form 11s.

The SSIA was fairly simple: save up to £200 pm, and the taxpayers add a quarter onto your monthly savings.

The Swedish ISK looks to achieve the simplicity feature, but also collects taxes to support high-tax Sweden.
 
C_Pike said:
ISK you can stick in as much as you like. After the tax free allowance of 300,000 SEK (about €28k today) you pay this annual tax that comes in somewhere in and around 1% - it can move depending on government borrowing costs - on the entire fund value over 300,000 SEK.
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Might this means thousands of accounts with about €20k-€25k in them, to avoid the annual tax?
 
C_Pike said:
it can move depending on government borrowing costs
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Yes, what borrowing cost is the ISK linked to?

3 month / 6 month bills can yield way less than 20 yr bonds.


Answer below:

Reflecting the long-term risk-free market rate​

The government borrowing rate is set based on the central government’s average interest on long-term loans. It is calculated as the average market rate for government bonds that have a residual maturity of at least five years. The government borrowing rate must reflect the long-term risk-free market rate.

Other uses​

The government borrowing rate is also used to calculate tax rates on pension insurance, endowment insurance and investment savings accounts. When tax is calculated for various savings instruments, the government borrowing rate at the end of November is used along with the average government borrowing rate from the previous year.

The government borrowing rate is also used to calculate tax on certain employment benefits.
 
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C_Pike said:
The world doesn't work in straight lines, though. So a year where you are -5%, you could be -6% thanks to the tax (assuming you've a lot saved over the tax free allowance.) That could have material downstream impact on your total "tax & drag" rate.
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I see scope for a stochastic model.
 
C_Pike said:
On a like-for-like basis, if you invested €23k per annum to an ISA vs an ISK type product for 20 years, getting 8% annual returns in a straight line after fees, your €460k of contributions would translate to €1,137,000 in an ISA type product and €1,011,000 in an ISK type product - about €80k lost to tax and a further €46k of lost investment gains from the tax drag.
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If we are talking about the squeezed middle, and Simon is, €23k per annum is a sizeable annual figure let's say from a €100k annual income. The ISK is almost anti-middle. For low incomes it is a sizeable tax free amount to build up to and for the higher incomes or more pertinently higher investible assets, it could be a better option for some investments such as high dividend stocks.
 
LarryScott said:
I did the ETF calculation out fully partly to show how complex it actually is.
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Yes and the interesting thing is that as the LAET comes down it effectively triggers rebates of the excess down payment on earlier deemed disposals which might explain the reluctance to reduce it quickly to the “correct” level which I would put at DIRT + 2%.
 
LarryScott said:
Assuming a 1% "wealth tax", it would be better than CGT, and a lot better than exit tax.
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Agreed. The comparison to an ISA shows it’s less advantageous than the UK product, but it is probably a lot better than our current system - except maybe in a downturn scenario
 
What I don’t understand is would our current systems stay and this is an alternative or does it replace everything?
 
Another thing is that CGT has a €1270 threshold per year.

At 6% return, an investment of €21667 would earn that per year. That suggests that a 30k tax free threshold would be comparable to the CGT limit.
 
faketales said:
What I don’t understand is would our current systems stay and this is an alternative or does it replace everything?
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This is a really good point.

You would not need different systems. One for small investors. Another one for large investors. Just 1% on anything over €30k.
 
Brendan Burgess said:
You would not need different systems. One for small investors. Another one for large investors. Just 1% on anything over €30k.
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Keeps it very simple.

Does it replace DIRT? I presume not.

I would be slightly worried that it would be a mechanism that could be increased if needed or by a different government. A bit like how money was taken from pensions.
 
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