NISA (small investment tax exemption system), which exempts investment profits, dividends, and distributions, is a good opportunity to use 2023, when there is concern regarding the economic downturn.
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In December 2022, the Liberal Democratic Party and the New Komeito Party decided on the 2023 Tax Reform Outline. In the “asset income double plan”, NISA (small investment tax exemption system) was expanded and made permanent, and the tax exempt investment period was decided to be indefinite.
2.5% increase in profit
NISA is a tax exemption system for investment profits, dividends, and distributions obtained from investments such as stocks and investment trusts.
Normally (when invested in a taxable account), investment income, dividends and distributions are taxed at 20.315%. If the profit on sale is 1 million yen, the amount left at hand will be 796,850 yen. However, if you use NISA, you can enjoy the full investment profit. Conversely, if 796,850 yen becomes 1 million yen, the profit will increase by regarding 25%.
The current NISA consists of “general NISA” that can invest in stocks, publicly offered investment trusts, ETFs (listed investment trusts), REITs (real estate investment trusts), etc., and publicly offered stock investment trusts and listed investments that are suitable for long-term, accumulated, and diversified investment. There is a “Tsumitate NISA” dedicated to installment investment in trust (notified to the Financial Services Agency).
Each has a different tax exemption period and annual tax exemption limit (new investment amount), and the general NISA has a maximum tax exemption period of 5 years, a tax exemption limit of 1.2 million yen per year, and new investment 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 investment is up to 42 years. Also, only one account can be opened per person, and you will have to choose either a regular NISA or a Mitate NISA. It is possible to change the type of financial institution and account once a year.
Although NISA is a system with many merits, it is a measure with a limited time limit, and the annual tax exemption limit of Tsumitate NISA is 400,000 yen, which is one-third of the regular NISA, and it is not divisible by 12 (months). (40 ÷ 12 = 3.333, which is not divisible, and even monthly investment cannot use up the quota).
The Asset Income Double Plan was revised in response to these dissatisfactions (Figure 1).
Make the NISA system permanent and make the tax exempt investment period indefinite. The annual tax exemption quota for the Tsumitate NISA (Tsumitate investment quota) will be tripled to 1.2 million yen per year. General NISA will be a “growth investment quota (provisional name)”, and the annual tax-exempt investment amount is expected to double to 2.4 million yen. The lifetime tax-exempt investment quota 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, either a general NISA or a Tsumitate NISA can be selected, but following the revision, it will be possible to use both the growth investment quota (general NISA) and the Tsumitate NISA, and manage them in one account. It will be.
Among individual investors, there are voices saying, “If the lifetime tax exempt investment amount of the growth investment quota is 12 million yen and the annual investment amount is 2.4 million yen, it may be used up in five years.” Under the current system, tax-exempt investment quotas cannot be reused, and there is also the inconvenience of not being able to replace stocks held or rebalance (return the holding ratio of owned assets to the initial balance). This also seems to have been resolved. The current tax-exempt accounts will finish buying at the end of 2023, but the current handling will continue within the tax-exempt limit of the new system.
So how should we make use of the expanded NISA? It is to thoroughly enjoy the benefits of tax exemption for investment profits, dividends and distributions for a long period of time.
long use of tax exemption
For example, with Tsumitate NISA, investors can steadily accumulate index investment trusts with low trust fees and other costs.
Let’s assume that you have accumulated 30,000 yen each month for 40 years and invested at an assumed yield of 3%. If you save in a tax-exempt account, you can enjoy the entire amount of 27.78 million yen, but if you use a taxable account, it will be 25.06 million yen. The difference is 2.72 million yen. Many people accumulate index investment trusts to prepare for retirement. In that case, not using Tsumitate NISA would be a big loss.
In the growth investment framework, diversified investment in stocks that can be expected to pay stable high dividends and individual stocks that continue to increase dividends can be considered. Internet brokers have companies that allow investors to invest in foreign stocks with general NISA accounts.
Among U.S. stocks, there are stocks called “dividend aristocrats” that have continued to increase their dividends for more than 25 years in a row in the S&P 500. There is a high possibility that profits continue to increase for stocks with consecutive dividend increases, and there are many cases in which there is a mechanism to pay dividends stably even if profits decrease. Therefore, we can expect a stable stock price trend while continuing to increase the dividend.
For example, let’s say that you invested 2.4 million yen and held a stock with a dividend yield of 4% for 40 years. Assuming that neither the stock price nor the dividend yield has 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 regarding 3.06 million yen. In addition, as the name of the growth investment quota suggests, a method of investing in stocks that are expected to have high growth in the future may also be considered.
The risk of investment and the difficulty of selecting stocks increase in the order of accumulation of investment trusts → consecutive dividend increasing stocks → investment in growth stocks.
Among those who are interested in investing but are unable to take the first step, there are those who say, “The stock price level is too high, and I’m worried that I might overestimate the price.” Many experts believe that the economy will deteriorate in 2023 and stock prices may fall. If so, it may be the year when we will have 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 Expanding the NISA system is now the beginning Enjoy high dividends tax-free = Hiroko Oyama
