The taxation of income from investment insurance and capital redemption contracts has changed as of 1 January 2020
The taxation practices of partial withdrawals made from investment insurance and capital redemption contracts have changed at the start of the year to match those of many other investment products, for instance fund investments or direct equity investments. The contract’s income will still not be subject to tax annually, but instead when the contract ends or funds are withdrawn. Changing investment objects within a contract is also free of tax.
Any losses that may have accrued at the end of the contract are deductible from capital income. Companies can deduct any loss as a business expenditure.
The change has impacted the income tax point
Withdrawals of funds from investment insurance and capital redemption contracts that have generated returns always include a proportion of the return, which is subject to capital gains tax. A share of the withdrawn funds that at the withdrawal date is in proportion to the share of returns on the entire contract’s savings is considered taxable income. Capital under the contract (i.e. premiums paid into the contract) is not taxable.
Example of the taxation of income
The capital invested in the investment insurance is EUR 20,000. The value of the investment at the withdrawal date is EUR 24,000, i.e. the capital is EUR 20,000 and the income is EUR 4,000. EUR 2,000 is withdrawn from the contract. The proportion of income withdrawn is calculated as 4,000/24,000 x 2,000 = 333,33 euros. Capital tax of 30 per cent is levied on EUR 333.33, which is EUR 100. EUR 1,900 will be paid into the customer’s account.
Any losses are tax deductible
Any losses are deductible in capital gains taxation when the contract ends. Companies can deduct any loss as a business expenditure. The loss is tax deductible in the year the contract ends and for the following ten years. The amount of losses is the difference between the amount paid to the investor and the payments he/she has made.
We report any loss in private customers’ contracts directly to the tax authority and the tax authority takes them into account in deductions made in taxes.
Investment insurance and capital redemption contracts are flexible and administratively effective investment solutions
Investment insurance and capital redemption contracts offer a flexible and administratively effective savings and investment solution. At your disposal is an extensive range of investment objects and you can change investments within contracts without tax consequences. With investment insurance you can also transfer assets flexibly to future generations.
For more information, please contact our customer service at +358 200 31100 (lnc/mnc).