The NISA (small investment tax exemption scheme), which exempts profits, dividends and distributions from investments, is a good opportunity to use 2023, when there is concern about the economic downturn.
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In December 2022, the Liberal Democratic Party and the New Komeito Party agreed on the 2023 tax reform scheme. In the “double business income plan”, the NISA (small investment tax exemption system) was expanded and made permanent and the tax-free investment period has been decided as indefinite.
Profit increase of 2.5%.
NISA is a tax exempt scheme for profits, dividends and investment distributions obtained from investments such as stocks and mutual funds.
Normally (when invested in a taxable account), capital gains, dividends and distributions are taxed at 20.315%. If the profit on the sale is 1 million yen, the amount left over will be 796,850 yen. However, if you use NISA, you can enjoy the full return on your investment. Conversely, if 796,850 yen becomes 1 million yen, the profit will increase by about 25%.
The current NISA consists of “general NISA” which can invest in stocks, publicly offered mutual funds, ETFs (traded mutual funds), REITs (real estate mutual funds), etc. for long-term, accumulated and diversified investments There is a “Tsumitate NISA” dedicated to installment trust investments (notified to the Financial Services Agency).
Each has a different tax-free period and annual tax-free limit (new investment amount), and the general NISA has a maximum tax-free period of 5 years, tax-free limit of 1.2 million yen all year and new investments up to 23 years . Tsumitate NISA has an annual tax exemption limit of 400,000 yen, but the maximum tax exemption period is 20 years, and the period for new investments is up to 42 years. Also, only one account can be opened per person and you will need to choose either a regular NISA or a Mitate NISA. You can change your financial institution and account type once a year.
Although the NISA is a system with many merits, it is a measure with a limited time limit, and the Tsumitate NISA annual tax exemption limit is 400,000 yen, which is one-third of the regular NISA, and is not divisible by 12 (months ) (40 ÷ 12 = 3.333, which is not divisible, and also the monthly investment cannot use up the quota).
The Asset Income Double Plan was revised in response to these dissatisfaction (Figure 1).
Making the NISA system permanent and making the tax-free investment period indefinite. The annual tax exemption fee for Tsumitate NISA (Tsumitate investment share) will be tripled to 1.2 million yen per year. The general NISA will be a “growth investment fee (tentative name)” and the annual tax-free investment amount is expected to double to 2.4 million yen. The tax-free lifetime investment fee for the NISA system as a whole is 18 million yen, of which up to 12 million yen is for growth investment.
Under the current system, you can select either a NISA General or a NISA Tsumitate, but after the review it will be possible to use both the Investment Fund for Growth (NISA General) and NISA Tsumitate and manage them in one account. Sara.
Among individual investors, there are rumors that, “If the lifetime tax-free investment amount of the growth investment fee is 12 million yen and the annual investment amount is 2.4 million yen, could be used in five years”. In the current system, tax-free investment quotas are not reusable, and there is also the inconvenience of not being able to replace the stocks held or rebalance (return the ownership ratio of the assets held to the initial balance). This also seems to have been fixed. Current tax-free accounts will finish purchasing at the end of 2023, but current management will continue within the tax-free limit of the new system.
So how should we use the expanded NISA? Is to fully enjoy the benefits of tax exemption for investment profits, dividends and distributions for a long period of time.
extended use of the tax exemption
For example, with the Tsumitate NISA, investors can consistently accumulate index mutual funds with low trust fees and other costs.
Let’s say you have accumulated 30,000 yen a month for 40 years and invested it with an assumed return of 3%. If you save in a tax-free account, you can enjoy the full amount of 27.78 million yen, but if you use a tax-free account, it will be 25.06 million yen. The difference is 2.72 million yen. Many people build up index mutual funds to prepare for retirement. If so, not using Tsumitate NISA would be a big loss.
As part of growth investing, you may consider diversified investments in stocks that may be expected to pay high, stable dividends and individual stocks that continue to raise dividends. Internet brokers have companies that allow investors to invest in foreign stocks with general NISA accounts.
Among US stocks, there are stocks called “dividend aristocrats” that have continued to increase their dividends for more than 25 consecutive years in the S&P 500. There is a high possibility that profits will continue to increase for stocks with consecutive increases in dividends, and there are many cases where there is a mechanism to stably pay dividends even if profits decline. Therefore, we can expect a stable share price performance while continuing to increase the dividend.
For example, let’s say you invested 2.4 million yen and held a stock with a 4% dividend yield for 40 years. Assuming that neither the stock price nor the dividend yield changed during the holding period, the dividend would be 3.84 million yen if tax free. In the case of a taxable account, it will be about 3.06 million yen. Also, as the name of the growth investment share suggests, one may also consider a method of investing in stocks that are expected to have high growth in the future.
The investment risk and difficulty of stock selection increases in the order of accumulation of mutual funds → stocks with consecutive dividend increase → investment in growth stocks.
Among those who are interested in investing but cannot take the first step, there are those who say: “The level of the stock price is too high, and I am afraid that I will overestimate the price.” Many experts believe the economy will deteriorate in 2023 and stock prices could fall. If so, it could be the year we get the opportunity to use NISA to buy good stocks at low prices.
(Hiroko Oyama, money writer)
Weekly Economist, January 10, 2023 issue
2023 investment seeds NISA system expansion is now the start Enjoy high dividends tax-free = Hiroko Oyama
