A life insurance, could that be a good idea for tax purposes?
Well, we’re happy you bring up the subject. However, there is no easy answer. We should dig into the most complicated details of the different tax regimes. But we could summarize as follows :
It makes a difference if you hold your life-insurance contract for a shorter or longer period than 8 years.
Tax regimes change all the time. Every year, there are new developments.
Below, you will find a summary of the underlying key ideas:
Tax treatment in case of surrender of policy
CASE 1:
Surrender before 8 years | CASE 2:
Surrender after 8 years |
IT at surrender date:
Advance tax of 12.8% (*)
+ SSC at source
IT in year N+1:
One-off fixed payment (PFU) of 12.8%
| Cumulated amount of the premiums paid by each policy holder on ALL of the life insurance and capital contracts on 31 December of the year prior to the one in which de surrender took place. |
Less than EUR 150,000 | Equal to or more than EUR 150,000 |
IT at surrender date: Advance tax of 7.5 % (*)
+ SSC at source | IT at surrender date: Advance tax of 7.5 % (*) + SSC at source |
OR
On general option, progressive schedule in N+1 | IT in year N+1: One-off fixed payment (PFU) of 7.5%
OR
On general option: IT at progressive schedule
Tax reduction of EUR 4,600 (person living alone) or EUR 9,200 (couple) | IT in year N+1: One-off fixed payment (PFU) of 7.5% on the fraction of the interest, in proportion to the amount that does not exceed EUR 150,000, and a one-off fixed payment (PFU) of 12.5% on the fraction of the interests that exceeds the amount of EUR 150,000.
Pro rata = EUR 150,000 / Paid net premiums of the repayments
OR
On general option, progressive schedule
Tax reduction of EUR 4,600 (person living alone) or EUR 9,200 (couple) |
(*) Upon request, taxpayers whose RTI N-2 < EUR 25,000 (person living alone) or EUR 50,000 (couple) are exempt from the advance tax of 12.8 % or 7.5 %.
IT: income tax - SSC: social security contributions - FWHT: fixed withholding tax (PFL) - OOFP: one-off fixed payment (PFU) - ITR income tax reference (RFR)
Tax treatment in case of death
Payment date | Age of the insured at payment date |
|
| Younger than 70 | Older than 70 |
| Art. 990 I of the French general tax code CGI | Art. 757 B of the French general tax code CGI |
Art. 990 I of the French general tax code CGI “Classic” contract: after the application of a tax reduction of EUR 152,500 per insured and per beneficiary on all of the contracts, the contract value at the date of death is taxed at 20% between EUR 152,500 and EUR 852,500, and at 31.25% above EUR 852,500.
Contract “Vie Génération”: after the successive application of two tax reductions, more in specific a first reduction equal to 20% of the contract value at the date of death, and a second one of EUR 152,500 per insured and per beneficiary on all of the contracts, the contract value at the date of death is taxed at 20% between EUR 152,500 and EUR 852,500, and at 31.25% above EUR 852,500.
Article 757 of the French general tax code CGI Interests earned on the contract: totally exempt from inheritance tax.
Premiums paid on the contract: subject to inheritance tax after a reduction of EUR 30,500 on all of the contracts, regardless of the number of beneficiaries.
The French real estate wealth tax (impôt sur la fortune immobilière-IFI)
If the insured is subject to this wealth tax and he has subscribed a unit-linked life insurance contract, the surrender value of the unit-linked fraction invested in real estate will be included in his estate. Policyholders subject to this real estate wealth tax must declare this value in their tax return.
However, the shares or undertakings for collective investments in transferable securities, invested for less than 20% in real estate property or rights, are excluded from the taxable base of the real estate wealth tax, provided that the tax payer holds less than 10% of the rights of this collective investment.
The same principle applies for the shares of real estate investment companies if the tax payer holds, whether directly or not, less than 5% of the capital and the voting rights of this company.