Tax and reductions

Tax and social insurance systems can seem complicated and difficult to keep up with. They can also affect your pension.

We want to keep our customers updated on how taxes and reductions might affect their savings.

A few facts about taxes and deductions

  • Tryggingastofnun (TR) deductions and capital gains tax take into account income, not assets.

  • Withdrawing your pension and interest gained has no effect on your Social Insurance (TR).

  • Submitting an income estimate to TR is important to ensure correct payment.

  • Capital gains tax applies to sales profits, dividends and interest. However, there is a ISK 300,000 tax-free limit per person which does not apply to TR pension payments.

  • The tax-free limit for TR is ISK 1,200,000 per year and ISK 100,000 per month.

How does interest affect my TR payments?


There is no capital gains tax-free limit at TR.

A TR pension is reduced by 45% due to all income, although there is an ISK 25,000 tax-free limit on total income and an additional ISK 100,000 for employment income. The housing supplement, which is paid to those who live alone, is reduced by 11.9% due to all income, e.g. capital gains.

Do I have to pay 22% capital gains tax on all interest?


Yes and no. The tax-free limit on capital gains tax income is ISK 300,000 and ISK 600,000 per family, so we pay a lower tax rate when everything has been calculated and refunded. Any gains beyond the tax-free limit is subject to 22% tax.

Capital gains tax is paid when interest is paid, whereas the tax-free limit amount is repaid with a mark-up.

Private pensions are not subject to capital gains tax.

No capital gains tax is paid on money invested in mutual and investment funds until the money is withdrawn.

See the RSK website for more info

TR deductions


How is my income affected?

A TR pension is reduced by 45% due to all income, although there is an ISK 25,000 tax-free limit on total income and an additional ISK 100,000 for employment income.

You should also submit an estimated income statement to TR. Go to the top right corner of the front page of www.tr.is and click on "My pages". Further instructions can be found below. Submitting this information could help prevent incorrect payments.

Speeding up or delaying TR payments


You must apply separately for a pension from Tryggingastofnun (TR) and it can take up to 5 weeks to receive payments.

Your signed application must be accompanied by an income estimate and confirmation that payments from the pension fund have been applied for.

Withdrawal limits were changed in 2017 and you can now apply for a pension from TR from the age of 65 to 80.

Those who choose to speed up or postpone their pension (based on the retirement age at any given time) may be subject to a permanent reduction or increase in rights at TR.

Applying for a pension once you have actually retired is often the best choice, as TR’s payments are income related.

Information and applications

Income tax on pensions
45%
Housing supplement deduction
11.9%
Deduction on private pension withdrawals
0%
Tax-free limit on total income per month
ISK 25,000
Tax-free limit on employment income per month
ISK 100,000

What if I move abroad?


Those who live in another EEA country retain their right to payments from TR, other than benefits that are considered social assistance.

If you intend to move to a country outside the EEA area, then you must contact the insurance fund in the country in question.

Prepaid inheritance


Prepaid inheritance is not taxed in the same way as when the estate is settled.

There is no tax exemption on prepaid inheritance and the spouse is not exempt from inheritance tax, which is currently 10%.

Prepaid inheritance may be paid to those who are entitled to an inheritance according to Icelandic inheritance law. An inheritance report must be completed, and inheritance tax paid before receiving the inheritance.

Payments toward residential care


Participation in the costs associated with residential or nursing homes is income related.

Payment participation cannot exceed ISK 438,747 per month. If the monthly income of residents in a residential home exceeds ISK 98,892 after tax (per month), the excess income (up to ISK 537,639 after tax per month) goes towards payments.

The withdrawal of private pension savings does not affect participation in living expenses and the tax-free capital gains limit is ISK 98,640 per year and earned income ISK 1,315,200 per year, or ISK 109,600 per month.

See the TR website for more information

Want to know more?

You can find further information here below. You can also chat with one of our advisors online or telephone our service centre.