Thoughts from foreigner: Savings and loans - an existing strategy in Sweden?

[Capsize3778]

Hello everybody !

First, apologies for not using Swedish. I can read it, but I will save you from google translate Swedish. I hope this is fine ! Please feel free to answer in Swedish.

I come from France, and heavily taxed country like Sweden. Like Sweden, we have products for people so they can save long term with lower tax burden (i.e, ISK in Sweden).

I never worked in France, I worked since the beginning in Sweden (And I love it here). For a few years now, I have been investing in index funds through an ISK, as I deemed it the simplest and most optimal way of investing in my eyes (This forum helped a lot diversifying my informations regarding investing, tack så jätte mycket).

I still have ties in France, and the investing vibe is also spreading widely in the French community. I thus have the chance to follow diverse ways of optimizing your investments, and exit strategies.

In Sweden, the consensus I have been reading is that for most people, ISK is just better for simplicity’s sake. In some cases with high government rates, a classic aktie konto can be better, but its usually not worth the pain of declaring when you’re just wondering where to start etc…

My only problem with the ISK, is that it acts the same way as a high fund fee: It has the ability to destroy your performance over time. In France, we don’t have this type of taxing. I won’t spend time describing what schemes there is over there, it’s out of topic. Yet, the tax issue is similar to what we experience in Sweden.

One technique that has been arising is shares borrowing. You take a loan at the bank against the value of your shares. The line credit you get is usually around 80% of what your shares are valued at. Now you may say, it’s mega risky, but I didn’t touch the goal of the borrowing yet. The goal here is not to borrow to invest more and hopefully profit more (Which could be a strategy, but is not one of mine for different reasons). The goal of borrowing here is to fund your way of life instead of selling your assets in order to fund your way of life.

Why is this interesting ?

In France:
Taxes when you sell are high up to 30% for now, as low as 17% with certain conditions.

In Sweden

• Aktie konto tax is 30%
• ISK tax is eating your performance over time (Acts as higher fees)

By Borrowing money, you have to pay interest, which can go up and down, but as far as I know, even to this day, the rate has been about tops 8-11% for Aktielån if I’m not mistaken ?

• In the case of an aktie konto, that means you will lower the amount of money lost to taxes quite a bit. When you die, the bank just sells the assets it needs to cover the debt you took, and your heirs get the rest.
• In the case of an ISK, it doesn’t have much interest except if you switched early to an aktie konto. If you did that, the yearly tax taken by the state is instead contributing to your compound interest, thus lowering the amount of money lost due to taxes. If I understood well, there are not much scenarios where an ISK over 30 years will be better than say an average 10% rate on a loan, or am I wrong ?

Now that I got the chance to explain what I’ve witnessed in another country, I would like to know if such scheme exists in Sweden ? Do people use it ? Is it common ? Am I missing something ?

And please, wherever I am wrong teach me !

[Nightowl]

@Capsize3778

Am I missing something ?

Yes. Before your heirs get the money from the assets the legal entity of the decesed (you) will pay the 30% tax.

So you just end up paying a lot of interest for the loans. The tax agency takes their share anyway.

[besj (Bengt)]

@Capsize3778

If I understood well, there are not much scenarios where an ISK over 30 years will be better than say an average 10% rate on a loan, or am I wrong ?

Här har du väl missförstått något? Hur skulle ett lån på 10 % PER ÅR i utgiftsränta vara bättre än fonder på ISK i 30 år? Kan du utveckla det?

[WarpDriveWealth (Räkmackepensionär)]

@Capsize3778

In Sweden, the consensus I have been reading is that for most people, ISK is just better for simplicity’s sake.

For most Swedish people who are sure they will stay and tax their capital in Sweden in their late life, this is probably the cheapest option as it stands.

However, with a normal stocks and funds account you can later tax your capital in a different tax juristriction depending on your life plans. For example pay zero or low tax depending on the country. Sweden has no exit tax.

Due to this I recommend most people not to use ISK. ISK guarantees a high tax rate and rules out any other options later. It acts more like a wealth tax. Only use that if you are sure you will stay in Sweden for the full duration of the life time of your portfolio.

[Martin08]

@WarpDriveWealth

For most Swedish people who are sure they will stay and tax their capital in Sweden in their late life, this is probably the cheapest option as it stands.

However, with a normal stocks and funds account you can later tax your capital in a different tax juristriction depending on your life plans. For example pay zero or low tax depending on the country. Sweden has no exit tax.

Due to this I recommend most people not to use ISK. ISK guarantees a high tax rate and rules out any other options later. It acts more like a wealth tax. Only use that if you are sure you will stay in Sweden for the full duration of the life time of your portfolio

Säger du inte emot dig själv här? Först att “this is probably the cheapest option as it stands”. Sedan “ISK guarantees a high tax rate and rules out any other options later”. Eller vad menar du?

Och varför kan man inte byta sedan? Det är väl bara att sälja av allt från ISK, dessutom utan att skatta, då man redan skattat på en schablonvinst. Natuligtvis oavsett upp- eller nergångar. Men kan ju sälja av och köpa samma tillgångar via vanlig depå, om det är det du menar med “a normal stocks and funds account”.

Eller vad missförstår jag?

[WarpDriveWealth (Räkmackepensionär)]

@Martin08

Och varför kan man inte byta sedan?

Med ISK betalar man skatt direkt, löpande, varje år. Det går inte att få tillbaka den (eller sänka den) 20 år senare när du är pensionär vid medelhavet och vill börja realisera vinster. Den ISK skatten har då sedan länge avlossats rakt in i det berömda svarta hålet och kan inte fås tillbaka Ingenting kan komma tillbaka från ett svart hål

Med ett aktie och fondkonto kan du med smartare val betala låg eller ingen skatt vid tidpunkten då vinsten realiseras (på slutet). Tack vare det kan du senare i livet använda de pengarna som annars hade gått till ISK skatt för att köpa alkoholfri öl på stranden, nya badbyxor och spabesök.

Vad tycker du är motsägelsefullt ?

[Martin08]

Det låter som att du först säger att ISK är det bästa (billigaste) alternativet för at sedan säga att det är det dyraste (high tax rate).

Vilka smarta val skulle det vara? Det är ju inte alls säkert att du kan kvitta mot en förlust någonstans.

[WarpDriveWealth (Räkmackepensionär)]

@Martin08

Det låter som att du först säger att ISK är det bästa (billigaste) alternativet för at sedan säga att det är det dyraste (high tax rate).

Det stämmer.

Som jag säger ovan så tycker jag att ISK kan vara det marginellt billigare sättet endast i ett enda fall. I det fall man med säkerhet på förhand vet att portföljen under hela sin livstid kommer att vara kvar i Sveriges och under svensk lagstiftning. Svensk lagstiftning har hög skatt oavsett form. Väg också in i beslutet att portföljen kan leva vidare mellan generationer och ha en lång livstid.

I alla övriga fall väger flexibiliteten tyngre. Jag pekade på att Sverige inte har någon exit skatt. Det betyder att man kan använda annan lagstiftning för sin portfölj, om det är bättre. Det är oftast bättre, ibland mycket bättre eller helt skattefritt. Det kan alltså aldrig blir sämre än den svenska lagstiftningen.

[Capsize3778]

Yes. Before your heirs get the money from the assets the legal entity of the decesed (you) will pay the 30% tax.
So you just end up paying a lot of interest for the loans. The tax agency takes their share anyway.

True, It’s not the case in France, I missed this case completely. Yet it may not be optimized for you heirs, but it still remain a valid strategy for your own self, isn’t it ?

[Nightowl]

@Capsize3778

Yet it may not be optimized for you heirs, but it still remain a valid strategy for your own self, isn’t it ?

I don’t see the benefit for you? The interest you will be paying on the loans is a major problem.

[Capsize3778]

Här har du väl missförstått något? Hur skulle ett lån på 10 % PER ÅR i utgiftsränta vara bättre än fonder på ISK i 30 år? Kan du utveckla det?

The idea is to take the loans when you want to live off your investments. If you were not to take any loans, you’d pay 30% when selling (If you have an AF) or you would have paid compounding taxes over 30 years with an ISK. This is what is to be compared with the rough 10% interest rate.

When doing tax payment comparisons, we’re not far off with an ISK over 30 years and 30% tax rates on wins. So a 10% interest rate sounds like a good deal.

[Capsize3778]

I don’t see the benefit for you? The interest you will be paying on the loans is a major problem.

The benefit is that you pay 10% interest instead of ISK compound fees OR instead of 30% tax on earnings (Which over 30 years earnings represent most of your capital if you just do a stupid ETF / world fund). This means you can hold longer than if you were not doing this.

[Nightowl]

@Capsize3778

The benefit is that you pay 10% interest instead of ISK compound fees OR instead of 30% tax on earnings (Which over 30 years earnings represent most of your capital if you just do a stupid ETF / world fund).

Thats not correct. 30% in tax on Earnings is not most of your capital after 30 years.

It is also incorrect that you pay 10% interest on the loans instead of the tax. You will have to pay the tax no matter what.

[Martin08]

@WarpDriveWealth

Det stämmer.

Som jag säger ovan så tycker jag att ISK kan vara det marginellt billigare sättet endast i ett enda fall. I det fall man med säkerhet på förhand vet att portföljen under hela sin livstid kommer att vara kvar i Sveriges och under svensk lagstiftning. Svensk lagstiftning har hög skatt oavsett form. Väg också in i beslutet att portföljen kan leva vidare mellan generationer och ha en lång livstid.

I alla övriga fall väger flexibiliteten tyngre. Jag pekade på att Sverige inte har någon exit skatt. Det betyder att man kan använda annan lagstiftning för sin portfölj, om det är bättre. Det är oftast bättre, ibland mycket bättre eller helt skattefritt. Det kan alltså aldrig blir sämre än den svenska lagstiftningen.

Tack, då hänger jag med bättre. Alltså är isk sämre om man kan nyttja annat lands lagstiftning till att få bättre uttagsmöjligheter, lägre skatte m.m.

Men om man har isk i några år innan man vet att man ska flytta, då räcker det väl med att bara flytta till depå. Jag är med på att man då har skattat lite varje år. Med man kanske ändå via flytt till depå när man flyttar utomlands kan nyttja det nya landets lagstiftning under tiden man ligger i depån. Det bästa hade naturligtvis varit att man visste om att man skulle flytta senare och legat i depå hela tiden.

Eller missförstår jag något här också?

[besj (Bengt)]

@Capsize3778

The idea is to take the loans when you want to live off your investments. If you were not to take any loans, you’d pay 30% when selling (If you have an AF) or you would have paid compounding taxes over 30 years with an ISK. This is what is to be compared with the rough 10% interest rate.

When doing tax payment comparisons, we’re not far off with an ISK over 30 years and 30% tax rates on wins. So a 10% interest rate sounds like a good deal.

This requires the build up period of capital to be very long and the remaining life time to be very short, right? Given your description it doesn’t look to me to be less than 5-10 years. Why not then just sell parts off at 30 % tax instead of paying annual interest rate of 10 % for 5 years or more?
I could see the argument to avoid ISK but for those of us who will live and die in Sweden it is worth quite some to skip the tax declaration for capital gains and just sign off an "expected revenue).

[WarpDriveWealth (Räkmackepensionär)]

@Martin08

Men om man har isk i några år innan man vet att man ska flytta, då räcker det väl med att bara flytta till depå.

Ja, jag misstänker att du fortfarande missförstår. Det går visst att byta till depå när man sent i livet vill flytta till solen. Problemet är att skatten du då redan betalat under den långa “get rich” tiden under ISK wrapper inte går att få tillbaka retroaktivt. Den är alltså helt konsumerad av det svarta hålet .

Flexibiliten att skatta var och när man vill, eller om portföljen går i arv och påverkas av andra människors livsval och förutsättningar, fungerar bara om man INTE väljer ISK. Det är därför jag rekommenderar detta. Skillnaden i de olika formerna av svensk skatt är ändå marginell.