The Government has submitted a proposal to increase the tax on the Investment Savings Account. In practice, the increase means using the government loan rate plus one percentage point instead of only adding 0.75 percentage points as it is right now.
This means a significant increase in the tax on long-term savings
The increase in the tax on ISK is part of the Left Party’s demand for increased tax for those with higher incomes and now it seems that they want to get through the proposal. Since they think that savings in ISK and capital insurance mainly benefit those who have a lot of savings and income from capital, they want to raise taxes. The fact that they are aiming for ISK seems to be because they did not get through their other attempts to raise taxes, for example by raising the break point for state tax and changing the 3:12 rules.
The tax on ISK is different compared to ordinary fund accounts where you have 30% profit tax when you sell something. Instead, a flat rate tax is calculated on an ISK, which is calculated by multiplying the capital base by the government loan rate plus 0.75 percentage points. The proposal entails multiplying the government loan rate plus 1 percentage point, which is 0.25 percentage points more than before.
Since you have only increased part of the calculation of the tax, you can not say on a straight arm how much difference it makes, but you first have to count on it. But in concrete terms, the increase could mean a tax increase of around 20% in one year, which is quite a lot. The sad thing about this proposal is that it not only affects the “rich” but basically everyone who wants to try to get some long-term private savings.
What is an Investment Savings Account and how does it work?
After the old alternatives for private pension savings – private pension insurance and IPS (individual pension savings) – were basically abolished by the expiry of the right to deduct them, the Investment Savings Account (ISK) is instead the new main alternative. The idea of ISK is that it should be a modern and flexible alternative for those who want to save on pension or have some type of long-term savings in private.
An ISK is a collection account with which you can buy and own eg shares and funds. There are some important differences between such an account and a regular stock or mutual fund account. In normal cases, you should always declare sales and then pay 30% tax on profits when you have sold an item. With an ISK you avoid this as you instead have a standard tax which is calculated based on the value of the account divided by the whole year, etc.
This means, firstly, that you do not have a 30% profit tax but instead tax otherwise. The standard tax is calculated as previously stated on the basis of the national mortgage rate (which may vary up and down depending on the interest rate situation). Right now, the interest rate is generally very low and this has also led to low government loan rates. This, in turn, means that the interest rate on ISK is relatively low and is currently fixed at the lower limit of 1.25 percent. Thus, in most cases, you earn from having your investments in an ISK instead of a regular mutual fund account.
The other advantage is that you do not have to keep up and argue with the declaration. It is possible to buy and sell shares and funds etc on an ISK freely without having to declare this. It works precisely because you still do not pay a tax per transaction but a lump sum on the entire savings. The result is that it is really easy to manage your savings on an ISK and you can freely exchange funds etc. without extra work.
One thing to remember is that you cannot offset losses against profits in the same way as you can in a regular fund account. There you can sell one item with a profit and another with a loss and set it off against each other to reduce the profit. In an ISK it doesn’t work that way because you don’t care about the profits in the same way. You cannot set off, but instead have a generally lower tax.
Raising the tax a less good alternative
The Left Party has always wanted to raise taxes for those who have a little more money but have not really managed to get through their raises. Now they are giving up on ISK to be able to get one of their tax increases. The sad thing is that the result is that they, whether it is the idea or not, punish long-term savings.
At present, loans and indebtedness are premiums as we have very low interest rates. At the same time raising the tax on long-term savings is like saying that we should borrow money, not save. But this is obviously not a good idea. Saving is very good, probably the most important thing you can do to improve your finances. So it feels sad that you want to break your legs for this.
The idea that the Left Party has is to try to reach those who have the most income from capital, those who have a lot of money in investment and profit from it. Sure you can say that increased tax on ISK affects them but it also affects all other ordinary savers. Everyone who has a private pension savings or tries to save up for something a little further ahead such as a new home. For those who save for the pension, the tax increase can make several monthly salaries in the long term, in the long run.
As we have already seen, the increase in the tax would be pretty big, maybe around 20% in real money. So its not a slight increase. The idea with ISK is that it should be a simple and good platform for savings, especially for those who want private pension savings. When you have abolished IPS and private pension insurance, a sensible alternative is needed and it is ISK that has been presented as the compensation.
If that is to be the case, however, you also need to let ISK be a good and reasonable alternative, without being on and raising the tax. It is sad that the Left Party’s bullshit, that they will get through some kind of tax increases, should go beyond long-term savings which is a very good thing. As I said, saving is the basis of a healthy economy and should be rewarded rather than punished. Debt is probably what should be penalized instead, as it only leads to uncertainty and possible financial problems.