New Year means new fund tax for Swedish investors

Fund investors in Sweden are bracing themselves for the introduction of a new tax on 1 January, which will shift the responsibility to pay onto the individual investor rather than the fund.

The new tax is estimated to earn fiscal authorities SEK550m (€61m), but has been criticised by the Swedish Investment Fund Association (Fondbolagens förening), reports Göteborgs-Posten.

“We removed wealth tax in our country, so why re-introduce it again on fund investments? We think that is unnecessary. Either we should have an annual flat tax, or tax on actual gains when redemptions are made,” said Pia Nilsson, chief executive of the Association.

However, Claes Hemberg, personal finance specialist at Avanza bank, said the actual effect of the new tax is so low that it is not worth getting worked up over. It is most likely to hit those saving in bond funds, given that yields are being pressed lower. Swedes have been big net buyers of fixed income funds this year, particularly money market funds. With average yields down to 1-1.5%, the new tax on funds is likely to be felt in this area of the funds market.

Those looking for fixed income may therefore end up considering other types of investments than funds, in order to avoid the new tax. However, any decision would have to be acted on before the end of the year, said Ylva Yngveson, head of Swedbank’s Institute of Private Finances.

Children will also be hit by the new tax, which kicks in if the value of the investment is above SEK50,000 (€5,600). If both sets of grandparent pay in SEK500 per month to a fund on behalf of a grandchild, the figures suggest that child will get a tax bill around the time they start their first year of schooling at age 7. This is a particularly emotive issue in Sweden, where more than 80% of the population overall is estimated to have some form of collective investment exposure through funds – or 99% if the Premium Pension system is included.

EU taxes

Further on the tax issue, the Investment Fund Association has responded to proposals included in the European Commission’s proposal – COM(2011) 594 – for a financial transaction tax.

The Association said it is against the proposal because it will, in the end, be paid by investors, many of them at the consumer level.

“Private households with long term investments in pension and insurance products will be hit by the tax through lower return. Fund investors will in addition be hit by several layers of tax. The proposal counters the level playing field between different types of  savings products inside and outside the EU,” the Association said.

Its full response can be read here (in Swedish).





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