OneLife Capitalisation contract Finland

OneLife will soon be ready to launch its capitalisation contract product designed for Finnish legal entities. Due to the impact of Finland’s inheritance tax rules, capitalisation contracts are generally recommended only to legal entities, while life assurance products, such as Wealth Finland, are recommended to private individuals.

Capitalisation Finland complies with Finnish law while benefiting from the advantages offered by Luxembourg regarding flexibility and protection. It is a unit-linked capitalisation contract that enables underlying investments in multiple asset classes including both listed and unlisted equities and bonds. The new product permits open architecture involving multiple custodian banks and asset managers as well as self-management. However, the policyholder should not be involved in the management or business activities of the underlying investments. The policy can be pledged and its ownership transferred to a new policyholder accepted by OneLife. Premiums may be paid in cash or in kind by transferring an existing investment portfolio into the policy.

Capitalisation Finland enables legal entities to consolidate investments and postpone taxation of income from investment activities. The product may also be used in Management Incentive Schemes (MIPs). It enables passive investment in both listed and non-listed assets, for example equities, bonds and different types of funds as long as the assets are freely transferable and other legal and internal requirements are fulfilled.

The tax treatment of capitalisation contracts has been clarified in Finland thanks to written guidance from the tax authorities. There are also multiple new tax and court rulings that can make investments through Luxembourg-based assurance products attractive, for instance to private equity and real estate funds operating in the form of limited partnerships. Moreover, according to a recent decision by the Supreme Administrative Court of Finland, it is possible to obtain dividend withholding tax relief on Finnish-sourced dividends paid to the Capitalisation Finland policy.

Legal update – Changes in Finnish inheritance and gift taxation

On 1 January 2017, Finland’s inheritance and gift tax legislation was amended, involving the following main changes concerning life assurance policies:

1. The inheritance and gift tax rates have been lowered (for the first category of heirs/beneficiaries the top inheritance tax rate was reduced from 20% to 19% and the gift tax rate from 20% to 17%).
2. The standard spousal allowance was increased from €60,000 to €90,000 and the standard allowance for minor children was increased from €40,000 to €60,000.
3. The €35,000 tax-exempt allowance on death benefits to close relatives is abolished with effect from 1 January 2018.
4. The 50% tax-exempt allowance for widows on death benefits is abolished with effect from 1 January 2018.

On its own, the impending abolition of the €35,000 tax-exempt allowance for close relatives will increase the tax impact for beneficiaries. However, the overall reduction in inheritance tax rates may in many cases compensate for this and even result in a lower tax burden for beneficiaries.

The abolition of the widows’ 50% tax-exempt allowance will affect policies where spouses are named beneficiaries. For these policies in particular, it is recommended to review with a local advisor whether the existing beneficiary nominations are still viable. Please note that the existing beneficiary nomination can be changed through a written request signed by the policyholder, although changing irrevocable beneficiary nominations also requires the consent of the irrevocable beneficiary.