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

The big problem with it is that all our politicians are populists and would find it hard to stay the course long-term.

So if the stockmarket doubles over a few years, there would be calls for a new CGT on such gains and 1% is paltry.

On the other hand, if the stockmarket declines, people would be onto Joe to complain about having to pay tax while losing money.
 
That’s certainly been the experience in Sweden.

Originally tax was fixed at 30% of the government borrowing rate and has been incrementally increased to 30% of the borrowing rate plus 1%, with a floor of 1.25%.

The €30k tax-free allowance was only introduced this year.

I can certainly see why the Department of Finance would look favourably on the Swedish model - it essentially transfers risk from the State to the individual.
 
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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As long as the new system means less tax than the old system, the old system will just decay away on its own.

One big advantage of CGT for estate planning is that any tax dies with the owner. If you hold shares until you die, there is no CGT due.

With the ISA, the person would pay taxes every year while they are alive, so that advantage is lost, but the yearly tax is (presumably) less.

This makes little difference for someone in the 30's, so they would still use the ISA.
 
LarryScott said:
One big advantage of CGT for estate planning is that any tax dies with the owner. If you hold shares until you die, there is no CGT due.
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This is a huge issue. I would like to rebalance my share portfolio now but the CGT bill would be quite big. If CGT were not an issue, it would be a lot simpler.

But assets in Sweden held outside an ISK are subject to 30% CGT on disposal and 30% Income Tax on the dividends. I presume it would be the same in Ireland.
 
I'm curious about the assets possibly included in an ISK wrapper in Sweden.

Say I buy shares in a passive world ETF on DeGiro.

Is that included?

Does DeGiro have to opt-in to the ISK regime? If so, DeGiro becomes a tax collector for the Swedish state?

My question is whether the large non-Irish platforms would do this for a small market like Ireland?
 
The platforms would have to offer the ISKs.

I assume there would be some sort of process/agreement with Revenue to set them up - I doubt it would be much of an issue.
 
The more I think about the Swedish model, the less I like it.

It produces a reasonable tax outcome for an investor during periods when government borrowing costs are moderate and stock market returns are generous (the last 15 years, for example).

But there are plenty of time periods where that was not the case (the 1970s or 2000s, for example).

While I haven’t run the numbers, I suspect that over a long-term (multiple decade) holding period, an investor might actually do better with income tax/CGT treatment or even, possibly, exit tax.
 
If so, then that would reduce the competitive advantage that assurers have in Ireland?

Currently, some people choose them and their 1%+ AMC, as they deal with the LAET.

If you buy shares in an ETF yourself, it is hassle to do a Form 11 and pay exit tax.

If something like the ISK launched here, and assuming DeGiro and other low-cost stockbroker platforms sign up, then surely the 1% AMC model will be severely undercut?

People could move away from IL, Zurich, Standard Life, etc.. avoid 1.00 or even 1.50% AMC, and move into ETFs on the platforms at 0.20% AMC?

Brokers would also lose out?
 
I’m not sure if this has been said already, but in Sweden, annual ISK tax isn’t deducted through the provider. In Irish terms, it’s payable via an individual’s annual income tax return.

I think some posters are assuming that providers deduct the tax - they don’t. They simply tell Swedish Revenue how much tax the individual owes.
 
Okay, therefore all holders of an ISK must make annual tax returns, okay.

I don't think this would work here?

I feel Revenue would prefer deduction at source?
 
Protocol said:
Okay, therefore all holders of an ISK must make annual tax returns, okay.

I don't think this would work here?
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Why is this such a deal breaker ?

Is the "my account" portal that difficult? People seem to use it for health expenses and other credits ?
 
People here are used to submitting Form 12s to Revenue MyAccount to get tax rebates.

Wil people be happy with sending €300 - €500 - €1,000 to the Revenue, or having it deducted from their tax credits?

Is that too messy?

If there is widespread adoption of any lower-tax account, like 1 milion accounts, can the Revenue cope?
 
I think the reason we're hearing more about the Swedish ISK comes back to the severe conservatism within the Department of Finance.

An ISK system would be potentially more complex for an end user than an ISA, eroding the benefit of "simple product, wide take up."

But, crucially, an ISK system passes significant risk from the state to the individual end user. It's a predictable government tax on assets - in a good year where the value of assets under management over a tax free allowance rise by 10%, the government revenue will rise by 0.1%, but in a bad year where the value of AUM fall by -10%, the government revenue will fall by -0.1% (very roughly speaking). This is a €10m swing for every €10bn under management (over the TFA). Probably a bigger swing in a bad year as more comes under the TFA, but a bigger upside in years where amounts go over the TFA, depending on investor behaviour.

The DoF has shown itself to prefer getting its end over most other considerations time and again, and shown themselves to be instinctively anti-wealth creation where there is any risk to the tax base they can see, and so be it to the foregone potential economic benefits.

Look at the operation of things like the KEEP scheme (and most other share option schemes for employees of non-listed firms). Look at deemed disposal. Look at the SFT for pensions not rising with inflation, until senior public sector workers started to run into it recently. Look at the tax free allowance for CGT sitting at the euro-translated £1,000 of €1,270 for decades.

Never mind that share based incentives to employees helps drive a dynamic domestic start up scheme (and the treatment of employee share options in publicly listed, typically multinational, players is a lot friendlier). Never mind the unfairness that the SFT has been eroded by inflation significantly to date for private sector workers. Never mind that we have billions sitting on ice in deposits we want to deploy into investments that would make Irish households wealthier.

I'd say the ISK scheme with other guardrails, like annual and total allowance limits, and some offputting (for ordinary folks) tax filing regime is more likely than an ISA type scheme, which is genuinely investor friendly.
 
If it get in this years budget for next year launch then it’s a good start, doesn’t really matter what exact system is, start it then make it better if required. Anything is better than more years of reports and looking into it etc etc.
 
It will be interesting to see the details but if we precisely follow the Swedish model, it won’t really be an advance on where we stand today.
 
Sarenco said:
it won’t really be an advance on where we stand today.
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I have it down as fairly marginal (after the first €30k) if it’s a 1% annual tax between this and UK investment trusts. It’s definitely better than exit tax on ETFs?

Crucial piece is how cheap this will be to access (and they don’t do something silly like have an annual tax above 1%) . If this ‘ISK’ can get into ETFs at 0.05% mgmt fee and single bps platform fee then it might compare well to investment trusts. If it’s only done through Davy and the banks with a 0.5%+ slice for them they may as well bin it before they start.
 
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Can’t say I’m too excited.

From my understanding the taxing of an ISK is based on expected income as opposed to real. This keeps the calc simple.

So it’s basically current interest rate say 2.5% + 1.0% levy x 30% tax = 1.2%.

While rates on deposits rise when interests rates do (but are always relatively poor here), that doesn’t mean investment return will do it becomes less attractive when interests rates are high. Seems odd.

I also see it as a back door to a wealth tax on all income above x, what ever x will be will be the big story. And will it be inflation linked? Not a hope in Ireland I say. They will keep it as a budget “giveaway”.

I thought the long term thinking might be to align closer with the UK as the last of ISA would actually be an every day issue for man to a United Ireland.

So what happens with DD? Will there be a parallel process for money outside an ISK?
 
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