Wealth tax on stocks and funds

When living in Norway, we have something called wealth tax. This means the state demands a small percentage of everything you own, if you own more than a certain deduction limit. But here is a very important exception for investors: Stocks and mutual funds have a so-called valuation discount.

"Success is not a secret, it is a system."

— Florence Scovel Shinn

A good system for Norwegian investors is to understand how the tax system rewards investing in businesses. If you have 1 million kroner in a regular bank account, the tax authorities calculate this as 1 million in wealth. But if you invest the same million in stocks, they might only calculate the value as 800,000 kroner (with a 20 percent discount). You get a lower wealth on paper, and thus less wealth tax!

Why does the state do this?

Politicians want our money to be used to build jobs and businesses, instead of lying passively in the bank. Therefore, they give us a tax discount to take the risk involved in owning stocks.

Rules change: The valuation discount (stock discount) is decided by Parliament in the state budget every year. It has varied somewhat in recent years. It is important to keep an eye on the rules that apply for this exact year!

Pros and cons

Advantages

You pay less in wealth tax than if you had the money in the bank.
Encourages letting your money work and create returns in the market.
Applies to both Norwegian and foreign stocks, as long as they are owned correctly.

Disadvantages

Wealth tax must be paid regardless of whether the stock market goes up or down that year.
The discount can be changed by politicians from year to year, making it unpredictable.
You might have to sell stocks (and trigger capital gains tax) to afford to pay the tax.

Wealth tax on stocks and funds

Why does the state do this?

Pros and cons

Advantages

Disadvantages

Ready to try it in practice?

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