Pension return tax, the PAL tax

Pension return tax, the PAL tax

NAP tax covers the so-called pension return tax, which is the tax imposed on the current return and the interest on your pension savings. This applies to both retirement pension, retirement pension and annuity. In this text you can read more about what is meant by NAP tax and how it works.

The tax rate

The NAP tax has large annual fluctuations, which is partly due to capital gains and losses on pension assets. Nevertheless, it is a significant source of revenue for the state. The tax rate is currently 15.3% (2016). Taxation applies to interest, dividends and exchange rate gains (both realized and unrealized). Exchange losses and negative returns can be offset against exchange gains and positive returns.

If you compare with a “regular” savings, between 27 and 42 percent of the tax on current returns must be paid. 15.3% is therefore a significant saving. However, you need to have the so-called stock principle in mind, which can be seen as a disadvantage, as the principle allows you to push the gains on ordinary shares, which you can wait to pay the tax until they are realized. Thus, with the principle of inventory, your current gains are taxed regardless of the ownership period and whether the gain is realized or not.

Once a year

You pay the pension return tax once a year. The settlement takes place in mid-January each year on all types of pension schemes. Your bank or pension company automatically calculates and settles the tax and subsequently passes the money on to GRAT.

It is therefore not possible for you to contact GRAT to find out how much you have paid. If you want a specification of your NAP tax, contact your bank or pension company, who can provide a description of the calculation to you.

Negative NAP tax

You achieve the so-called negative NAP tax this year, where your equity and bond investments have made a loss. In such a case, the NAP tax is calculated on the amount you have lost and then you can carry it forward to future years of gain.

This means that if you have a loss of USD 50,000 on your pension savings in 2014, you will receive a negative NAP tax of USD 7,500. If you also have a profit of USD 100,000 in the year 2015, you should have paid USD 15,000 in NAP tax in the year 2015, but because in 2014 you had a loss of USD 7,500, this amount is offset and you only have to pay USD 7,500 in NAP tax.

The pension schemes that are placed at a cash amount cannot give negative NAP tax as the interest rate will never be lower than 0%.

Bank overdrafts

You may find that overdrafts occur in your retirement account when the NAP tax is deducted. The overdraft is due to the tax being charged from the cash account, belonging to a custodian. If there is not enough money for the payment, the cash account is thus overdraft.

However, you cannot be forced to pay an overdraft, but you will most likely be called upon to do so. If you do not pay the overdraft, it will be offset in future deposits or in the sale of securities. You must also be aware that you must pay an overdraft rate, as the bank or pension fund has paid the money to GRAT.

Mary Spurlin

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