The key rate used to calculate tax due from gains from investments held according to the tax efficient investment savings account regime (investeringssparkonto, ISK) in Sweden has been set at 1.25% for 2017, reports the Swedish Investment Fund Association.
Hanna Helgesson, Financial Savings economist at the Association notes that this rate actually represents the “floor” below which this key rate cannot be set. The rate is made up of the government borrowing rate, which is a reference rate used in tax legislation, plus an additional 0.75%.
Helgesson says the rate has been set at 0.375% for 2017, which when combined with the 0.75% rate would be below the minimum 1.25% required for the ISK. (The government borrowing rate is set by the Swedish National Debt Office).
The ISK has become a well used account. As of the end of 2015 there were an estimated 1.9 million ISK accounts registered at the Swedish Tax Agency. Since the account was introduced in 2012 “practically all retail fund investments from households have been done via ISK,” Helgesson said.
She added that the low interest rate environment that has existed since the ISK regime was introduced in 2012, along with the lack of tax incentives to encourage private pension savings has encouraged people to save into this type of account.
By way of example, Helgesson said that a person who saved SEK100 monthly in a Sweden equity fund for the past five years would have paid just SEK800 tax on their gains in an ISK against SEK6,500 tax paid on capital gains for returns from directly investing in the fund. This also means that for those who have existing fund holdings, shifting to an ISK may not be beneficial because they would have to realise gains because fund shares have to be bought within the ISK to benefit from the tax wrapper effect.