This article provides a summary of the taxation of life assurance policies in Sweden. It is intended for use by financial advisers who provide advice to Swedish residents.
Life assurance policies
It is generally accepted in Sweden that a policy which is accepted as life assurance in the country where the policy was issued will normally be treated as life assurance in Sweden.
Life insurance policies are divided into capital insurance policies (kapitalförsäkringar) also known as ‘K’ policies and pension insurance policies (pensionsförsäkringar), also known as ‘P’ policies.
In order for a life insurance policy to qualify as a ’P’ policy it must:
- comprise old age, sickness and survivor's pension;
- not pay retirement benefits until the insured has reached the age of 55;
- pay retirement benefits over a 5 year period which must be level or increasing in payment, unless the policy is regarded as a unit linked policy.
Old Mutual International Ireland’s Executive Corporate Pension and Executive Investment Pension are regarded as ‘P’ policies for the purpose of this article. Old Mutual International’s policies and Old Mutual International Ireland’s Swedish Executive Portfolio are regarded as ‘K’ policies.
Tax relief on premiums
Premiums invested into a capital insurance policies do not qualify for tax relief.
Premiums paid into a private pension insurance policy receive tax relief up to certain limits from the policyholder's taxable income.
Premiums paid into an occupational pension insurance policy are within certain limitations non taxable for the employee and deductible for the employers.
Tax on full surrender (‘K’ policies only)
There is no tax on full surrender of a ‘K’ policy.
Tax on partial surrender (‘K’ policies only)
There is no tax on partial surrender of a ‘K’ policy.
Taxation of benefit payments (‘P’ policies only)
Payment of pension benefit payments, made to the Member or the beneficiary, will be subject to income tax.
Tax on death
There is no tax on the death of the assured on a ‘K’ policy. Pension benefit payments made to a beneficiary of a ‘P’ policy is taxable on the death of the Member.
Tax on maturity (‘K’ policies only)
There is no tax on the maturity of a ‘K’ policy.
Tax on assignment (‘K’ policies only)
There is no tax on the assignment of a ‘K’ policy.
There is no tax on fund switching.
Net yield tax
The policyholder is subject to an annual net yield tax on the surrender value at the beginning of the tax year. Net yield tax is assessed annually in the policyholder's tax return.
‘K’ policies are subject to net yield tax at 30%.
The formula for calculating the liability to net yield tax is:
Surrender value as at 1 January each calendar year PLUS 100% of the premiums paid before 1 July each calendar year PLUS 50% of the premiums paid for the remainder of the calendar year MULTIPLIED by the Government base rate as at the previous November plus 0.75% (subject to an overall minimum of 1.25%) and then MULTIPLIED by 30%
Example declaration for 2017
An initial premium of SEK100,000 is paid on 1 February 2017. The surrender value on 1 January 2017 is 0. The Government base rate as at November 2016 is 0.27% but 0.27% + 0.75% = 1.02% which is below the overall minimum rate of 1.25%.
The Net Yield Tax is: SEK100,000 x 1.25% x 30% = SEK375
An initial premium of SEK500,000 is paid on 1 February 2017. The surrender value on 1 January 2017 is 0. The Government base rate as at November 2016 is 0.27% but 0.27% + 0.75% = 1.02% which is below the overall minimum rate of 1.25%.
The Net Yield Tax is: SEK500,000 x 1.25% x 30% = SEK1,875
‘P’ policies are subject to yield tax at 15%. The formula for calculating the liability to yield tax is:
Surrender value on 1 January MULTIPLIED by the average Swedish Government borrowing rate, subject to a minimum of 0.5%, MULTIPLIED by 15%.
Policies signed before 1 January 1997 are not subject to net yield tax unless a payment has been made to the policy after 1 January 1997. Policies signed after 1 January 1997 are subject to net yield tax.
There is no wealth tax in Sweden. This was abolished on 1 January 2007.
There is no Inheritance Tax in Sweden. This was abolished on 1 January 2005.