Tax rules for investing in shares and other securities through endowment insurance (securities account) (2024)

From 2019, new tax rules were applied for investment in shares and other securities through endowment insurance (securities account). Such endowment insurances are taxed in the same way as investments in mutual funds when the insurance element is small. However, a few special tax rules apply for securities accounts. The rules for apply to endowment insurances without guaranteed yield.

What is a securities account?

A securities account is a combined investment and insurance product, formerly marketed under names such as Unit Link, Investment account, etc. The securities account includes an insurance element, and you can purchase and sell various securities through this account. The insurance company owns the securities, but as a customer, you hold the risk for any yield in relation to capital invested. You have a claim towards the insurance company for an amount that equals the value of the securities on the account.

When is the insurance element considered secondary

The insurance element is considered secondary when, upon an investor’s passing and/or disability, an insurance supplement constituting less than 50 percent of the remaining savings on the investment account is paid out. The same applies when, upon the policyholder’s passing or disability, a fixed amount is paid constituting less than 100 percent of the invested savings amount on the account.

Taxation of a securities account

Investment in securitiesthrough endowment insurance is taxed in the same way as mutual funds (the Taxation Act, section 10-20, subsection 10). This means, among other things, that taxation must be adjusted according to the composition of shares and other securities on the account. The principle is that any yield connected to shares is taxed by 31.68 percent, and that any yield connected to other securities is taxed by 22 percent (rates for 2019 and 2020). From2022, the tax rate on share income has an effective tax rate of 35.2 percent up to and including 5 October 2022 and 37,84 percent after 5 October 2022. For the income year 2023 the rates are 37,84 percent. Seetaxation of units in mutual funds.

How to calculate the share component on a securities account

The share component determines the tax rate for any yield on the securities account. When calculating the share component, the same standard applies as with mutual funds (the Taxation Act, section 10-20, subsection 3), i.e. the 80/20 standard. See more information on taxation of units in mutual funds. This means, for example, if the share component on the securities account is over 80 percent, all yield is taxed as share income and thus by a high rate.

Calculating the relation between shares and other securities

Derivatives

Derivatives are considered other securities. This also applies when the underlying object is a share or other company holding.

Cash, directly owned real property or other assets that cannot be considered company holdings or other securities

Such assets are not taken into account when calculating the relation between shares, etc. and other securities.

Other company holdings than shares

Such company holdings are considered shares

About risk-free return and share component

Although the insurance company owns the shares on the securities accounts, the new rules entitle securities account holders to deductions for risk-free return on the shares. Risk-free return is calculated by the securities account holder based on the share component at the start of the relevant year.

Du som investor skyter inn kr 120 000 på en fondskonto i 2020. Ved inngangen til 2021 er aksjeandelen på fondskonto 40 % (resten er rentepapirer og andre verdipapirer). Skjermingsgrunnlaget på fondskonto for 2021 blir da kroner 48 000 fordi aksjeandelen er 40 % prosent (40% av innskudd på kr 120 000). Ved inngangen til 2022 er aksjeandelen 10 %. Skjermingsgrunnlaget for 2022 blir da kr 0 fordi aksjeandelen er under 20 % og da settes den til 0 grunnet sjablongregelen.

I eksempelet er det ikke tatt hensyn til evt. ubenyttet skjerming som inngår i skjermingsgrunnlaget.

Merk at dersom det har vært gjort innskudd/uttak i løpet av året på kontoen vil dette påvirke skjermingsgrunnlaget. Uttak vil redusere årets skjermingsgrunnlag og innskudd vil øke årets skjermingsgrunnlag. Videre skal ubenyttet skjerming fra forrige år gå inn i grunnlaget for årets skjermingsberegning selv om hele eller deler er benyttet til å redusere skattepliktig uttak.

Investor skyter inn kr 120 000 på en fondskonto i 2020. Ved inngangen til 2021 er aksjeandelen på fondskonto 40 % (resten er rentepapirer og andre verdipapirer). Skjermingsgrunnlaget på fondskonto for 2021 blir da kroner 48 000 fordi aksjeandelen er 40 % prosent (40% av innskudd på kr 120 000),

I juli 2021 gjøres innskudd med verdi på kr 100 000. Skjermingsgrunnlaget på fondskonto for 2021 blir da kroner 88 000 fordi aksjeandelen (1/1-2021) er 40 % (40 % av innskudd på 220 000).

I eksempelet er det ikke tatt hensyn til evt. ubenyttet skjerming som inngår i skjermingsgrunnlaget.

Formelen for skjermingsgrunnlag:

((Gjenstående skattefritt beløp per 31.12.21 x Aksjeandel i kundens portefølje per 1.1.2021) + ubenyttet skjerming 1.1.2021) x skjermingsrenten 2021

Aksjeandelen for 2022 bestemmes ut fra sammensetningen av aksjer, andre verdipapirer og kontanter ved inngangen til 2022.

Specifically about dividend entering into the securities account

If dividend is distributed on the shares on the securities account, this must be allocated to the insurance company and be taxed there.

Specifically about withdrawals from a securities account - realisation

All withdrawals from a securities account are considered a partial re-purchase of the insurance and will trigger realisation taxation. With each withdrawal, a proportional share of premiums paid (tax-free contributed capital on securities account) and taxable gains are considered taken out of the account. When the taxable gains are calculated, they’re divided into a share component gain that’s taxed with a high rate and an interest component gain that’s taxed with a low rate. Any deduction of risk-free return will reduce the taxable share component gain.

Calculation of the realisation gain share component is made on the basis of average share component for each year in the period of ownership.

You contribute values of NOK 100,000 to the securities account so that the input value is NOK 100,000.

You make various investments and purchases/sales for a few years without any withdrawals. In the years you do not make any withdrawals, you must only enter capital from the securities account in the tax return.

After 5 years, you withdraw NOK 50,000 from the securities account.

You must then value the securities account at the time of the withdrawal in order to find the taxable yield. In the example, we presuppose that the market value on the securities account at the time of the withdrawal is NOK 400,000.

50,000 X 100,000 / 400,000 = 12,500

  • NOK 50,000 is the withdrawn amount
  • NOK 100,000 is the invested amount
  • NOK 400,000 is the market value

The fraction shows how much of the withdrawn capital is tax-free reimbursement of insurance premium/invested capital.

NOK 12,500 is the tax-free reimbursement of premium to reduce input value and basis for risk-free return to NOK 87,500.

NOK 37,500 is the taxable amount. In order to find the gain share component and gain interest component, you must look at the average share component for each year in the period of ownership. In this example, we presuppose the following share component:

  • Share component year 1: 50
  • Share component year 2: 70
  • Share component year 3: 85
  • Share component year 4: 30
  • Share component year 5: 50

The average share component is then (50+70+100+30+50)/5= 60

Note that for year 3, the share component will be 100 due to the standard rule (the Taxation Act section 10-20, subsection 3)

NOK 22,500 is taxed as share income (60 percent of the gain of NOK 37,500)

NOK 15,000 is taxed as interest income. (40 percent of the gain of NOK 37,500).

We presuppose that NOK 50,000 is withdrawn from a securities account with contributed capital of NOK 800,000. The market value is reduced to NOK 200,000 at the time of the withdrawal.

50,000 X 800,000 / 200,000 - withdrawal = 150,000

  • NOK 50,000 is the withdrawn amount
  • NOK 800,000 is the contributed amount
  • NOK 200,000 is the market value

The fraction helps you to calculate how much of the loss you’ve realised (NOK 150,000).

NOK 150,000 is the deductible loss.

In order to find the loss share component and loss interest component, you must look at the average share component for each year in the period of ownership. In this example, we presuppose the following share component:

  • Share component year 1: 50
  • Share component year 2: 70
  • Share component year 3: 85
  • Share component year 4: 30
  • Share component year 5: 50

The average share component is then (50+70+100+30+50)/5= 60

Note that for year 3, the share component will be 100 due to the standard rule (the Taxation Act, section 10-20, subsection 3)

NOK 90,000 is to be deducted as loss from shares (60 percent of the loss of NOK 150,000).

NOK 60,000 is to be deducted as loss from bonds. (40 percent of the loss of NOK 150,000).

Actual share component on the account

Share component for use in calculation of average realisation tax

Share component for calculation of risk-free return

1 January 2019

81%

100%

100%

1 January 2020

81%

100%

100%

1 January 2021

81%

100%

100%

1 January 2022

81%

100%

100%

1 January 2023

81%

100%

100%

1 January 2024

50%

50

50%

Average

75.83%

91.67%

Here you must apply 91.67 percent as basis for division of gain/loss on the share component/interest component (do not calculate the standard rule 80/20 twice). This means that if the gain is NOK 100,000, then NOK 91,670 must be taxed as share income, and NOK 8,330 must be taxed as interest income.

All withdrawals from a securities account are considered realisation. You must calculate gain/loss on the share component and interest component upon each withdrawal. The question is whether you must apply all unused risk-free return each time on all of the gains (on both the share component and the interest component), or whether you can choose to only apply unused deduction of risk-free return on the share component. You can then “save” the component of the unused risk-free return (which potentially falls on the interest component) until the next withdrawal when there’s also a share income component.

You must apply all unused risk-free return each time on the whole gain. If you wish, you may first reduce the gain on the share component by maximum unused risk-free return and then enter any remaining unused against the gain interest component.

The share component upon cessation of the agreement is taken into account for both the establishment and cessation of the customer relationship.

The share component must be valued by the end of the year, but upon reporting of the share component the actual share component is reported (not standard) per 1 January of the income year.

Example:

The share component on 1 January = 90 percent

The share component on 31 December = 80 percent

Tax value of securities account by the year-end is 100

  • Capital share component = 90
  • Capital interest component = 10

Private limited companies that own such products and the exemption method

The insurance company is the formal owner of the shares on a securities account and is taxed on any yield from these. Upon withdrawal from a securities account to a private limited company, the exemption method applies to the share component.

As a seasoned financial expert with a deep understanding of investment taxation, especially in the context of securities accounts and endowment insurances, I bring a wealth of knowledge to dissect the intricacies of the tax rules applied to such financial instruments.

The introduction of new tax rules in 2019 marked a significant shift in the taxation of investments in shares and securities through endowment insurance. These rules specifically target securities accounts, which are composite products combining both investment and insurance elements. Formerly known by various names such as Unit Link or Investment account, a securities account allows individuals to buy and sell a variety of securities, with the insurance company owning the securities while the customer assumes the risk for potential yields.

One of the key distinctions lies in the treatment of the insurance element, which is deemed secondary when it constitutes less than 50 percent of the remaining savings upon the investor's passing or disability. Special tax rules apply to securities accounts associated with endowment insurances lacking guaranteed yields.

Taxation of a securities account mirrors that of mutual funds, with specific adjustments based on the composition of shares and other securities in the account. The tax rates, varying for shares and other securities, have changed over the years and are subject to adjustments. The calculation of the share component, crucial for determining the tax rate, follows the 80/20 standard, similar to mutual funds.

Derivatives are considered as other securities within the securities account, even when the underlying assets are shares or other company holdings. Assets like cash, directly owned real property, or those not classified as company holdings or securities are excluded when calculating the ratio between shares and other securities.

Despite the insurance company owning the shares, the new rules grant securities account holders deductions for a risk-free return on the shares. This risk-free return is calculated based on the share component at the beginning of the relevant year.

The article further delves into practical examples of calculating the share component, skjermingsgrunnlag (a basis for tax calculations), and the taxation of dividends, withdrawals, and realizations from a securities account. It provides a comprehensive overview of the methodology, formulas, and considerations involved in determining taxable amounts and components.

Additionally, the article touches upon the treatment of securities accounts when withdrawing to private limited companies, highlighting the exemption method applicable to the share component.

In essence, this information encapsulates the nuanced landscape of securities account taxation, offering a detailed roadmap for investors navigating this complex financial terrain.

Tax rules for investing in shares and other securities through endowment insurance (securities account) (2024)
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