Taxation of life insurance: precautions to take

This investment is appreciated for its taxation measured. But, to reduce his note, it is better to be aware of all the subtleties. And the reform of the levy one-time lump sum (PFU) of 30% is going to change that.

For life insurance, the reform of the tax unique (PFU) of 30% promises more shock than a simplification. Because the project is in the process of gestation can not make a clean sweep of the past commitments of the exchequer to the different generations of policyholders, or get out of the complex articulation between the different taxes that they must replace.

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For the record, life insurance is an investment that is entrusted to an insurance company with which the subscriber can recover his money so long as he is alive. After his death, the insurer passes the remaining principal to your designated beneficiaries. This specificity is at the origin of the exemption of succession rights that made the success of this investment with over 15 million subscribers, who have so far filed nearly 1700 billion euros of savings in these contracts.

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A tax-complexity byzantine

Careful with its voters, the candidate Macron was committed not to be too upset that building: "We shall maintain the great principles of life insurance, a product now owned by 1 household of 3", announced that he would concentrate on three points: "Firstly, the benefits to the estates will be maintained, including the reductions of 30500€ or 152500€ depending on the age of payment of the premiums.

Deusio, the income (accrued and future) of the payments already made will not be affected by the reform: the flat-rate withholding tax of 7.5% at the end of eight years, and the allowance of 4600 euros (9200 euros for couples) will be maintained for these revenues. Thirdly, the income earned on the amounts paid after the reform and contribute to the development of the economy will not be affected, except for the stock above 150,000 euros."

The taxation of the income of the life insurance is already of a complexity byzantine, with different fees according to the opening dates of the contracts (prior to 1983, since September 26, 1997, and between the two), times, and even the types of investment. The interests of the funds in euros, which represent more than 80% of the savings in life insurance, are subjected each year to the social security contributions in force (15.5 percent since July 2012), while those of "units of account", jargon designating all other investments (in formula, stock market funds or real estate, etc), are only taxed at the time of their withdrawal.

The effects of PFU gains

In summary, in the case of a withdrawal after eight years, the gains of the life insurance undergo, in most cases, only the social contributions that have not already been taken on the funds in euros, plus a flat-rate tax of 7.5% if the amount withdrawn in the year exceed € 4,600 for a single person and 9200 euros for a couple.

These thresholds apply only to gains, not the total amount of the withdrawal. Let's take an example: a policyholder has invested 100000 euros in life insurance since 2007 and his contract reached 120000 euro in 2017, with interest. If he makes a withdrawal of € 20,000, these benefits represent only one-sixth of this amount. In the eyes of the irs, the withdrawal is divided between 16667 euros recovery of the initial capital and 3333 euros of gains, which are lower than the tax thresholds and thus be exempt from the flat-rate tax of 7.5%. According to the promise of government, this mechanism should be maintained.

What inheritance will you have to pay?

* Age of the insured at the time of payment of the premium. ** 31,25% for the fraction of the share of taxable to each beneficiary exceeding 700,000 euros after abatement. There is an exemption from the levy of 20% or 31,25%, and inheritance rights when the beneficiary is: the spouse, the partner related to the deceased person by a civil solidarity pact (PACS), or the brother or sister (under conditions). *** Allowance additional 20% on capital for contracts "life generation".

The Express

So what is it that changes with the introduction of the one-off charge of 30% on the gains? All the rest, or nearly so. First, the taxation of withdrawals before age eight. To deter the speedy output of insurance (in the case of withdrawals before this period), the gains are now subject to tax on the income in addition to social security contributions, or withholding of 35% in the case of a withdrawal before age four, and 15% on withdrawals between four and eight years.

With the PFU of 30%, there would be more of penalty in case of withdrawal before four or eight years, or incentive to long term savings, but a priori only for new contracts and payments. "Life insurance is a long-term investment; and if the taxation becomes the same regardless of the term, and that investors are encouraged to change from day to day by practitioners lusting after their customers, insurers will no longer have the ability to invest for the long term," says Eric Baron, ceo of Swiss Life Assurance et patrimoine.

terms still unclear

beyond The broad principles announced in recent weeks and the clarification made by the first version of the project of finance law présentée on 27 September, the practical modalities of implementation of the PFU of 30% on the gains of the life insurance remain unclear. And their implementation will require clarification in consultation with the appropriate professionals. One of the major difficulties of this reform, in the case of a life insurance policy, is to identify the taxpayers targeted: those who have placed more than 150,000 euros of savings, or more than 300,000 euros for a couple, not counting the interest and gains generated by these payments.

No insurer today does not have this information, because no one knows if its customers have other contracts elsewhere. Therefore, how to apply the levy of 30% on withdrawals? Certainly, from January 2016, insurers are required to feed the new file Ficovie, which lists the contracts for funding or investments of the same nature, which makes theoretically possible to identify the investors who have placed more than 150,000 euros.

But open that the file is centralized to all insurers pose problems of confidentiality and competition. Finally, they also state the income paid to investors on the printed fiscal unique (IFU), addressed to the taxpayers and centralized by the tax authorities, but these do not yet indicate the amount of their life insurance contract.

another difficulty of the reform concerns the arbitration between the application of the social security contributions, currently taken each year on life insurance in euros, and the application of the single rate of 30% for affected taxpayers. The final choice will be there to apply the PFU each year on the interest earned on the funds in euros, or only in the case of a withdrawal on all gains withdrawn?

A puzzle for the legislature and insurers

In both cases, this promises to be a headache, for the legislator as for the insurers. "Until everything is put in place, the investors have an interest to anticipate the maximum payments on their life insurance policy, to optimize their chances of escaping to the new rules," explains Nicholas Braun, director-general of Constance, Associated.

If the government is struggling to find the right settings for tax, the tax itself away sometimes the rules to collect more taxes at the expense of taxpayers, as in the case of inheritance tax on the payments after the age of 70. In principle, if we place 30500 euros on a life insurance after 70 years, this capital and all of the gains that it has generated are exempt from inheritance tax by virtue of article 757 B of the general tax Code (CGI).

In effect, only payments in excess of the threshold 30500 euros are subject to the rights of succession. But, in practice, "as it is interpreted by the administration, in the case of a partial redemption of a contract consisting of premiums paid after 70 years, the portion of the premiums redeemed is not to be deducted from the amount of the premiums paid taxable to the estate tax," explains Marc crash during, president of the Institute of lawyers-tax advice (IACF).

Abuse of tax

In the clear, the tax authorities are claiming, sometimes to the beneficiaries of the inheritance tax on the money they have never received, because they had been removed from the contract by the subscriber before his death, without the tax takes that into account.

Outraged by this tax abuse, a life insurance broker, Francis Nocaudie, brought the matter to a court to challenge the interpretation of Bercy in the light of the principle of equality before the tax, as guaranteed by article 13 of the Declaration of the rights of man and of the citizen of 1789. François Nocaudie is renowned for his insight and tenacity.

After having discovered and proved the diversion of the founders of the life insurance Afer, he had been correct a few years ago a interpretation error in the calculation of social contributions unfavourable to 700000 subscribers of this contract otherwise efficient (to 2.65% return in 2016).

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Following the favourable opinion of the Court of cassation on its priority issue of constitutionality (QPC), we are waiting for the verdict of the constitutional Council, which deliberated on the 26th of September. "We hope that the Board will sanction not the text itself, but the interpretation that, in fact, the administration says," for Me to crash during. The taxation of life insurance is decidedly so complex that even the irs understands it through!