Taxation of life insurance: explanations– Get a quote online

The essential:

  • Life insurance is the last unrequited tax niche in France;
  • When you buy back, only capital gains are subject to tax and you benefit from a low tax rate which decreases according to the age of your contract and the value of your contract;
  • Your heirs will be taxed less than on the rest of the assets that make up their estate.

Life insurance is a fiscal envelope in which you can invest in a very wide choice of financial products. She is subject to very advantageous taxation in the event of life and during your succession. Note that it is the date of the subscription of the life insurance contract which is to be taken into account for the taxation during your life and not the date of the payments. This is why it is necessary to set a date, that is to say, to open a life insurance contract in anticipation of a future investment and / or of the transmission to your heirs.

For more information on how life insurance works, do not hesitate to read our article: life insurance: explanations and simulate your inheritance law.

Taxation in the event of life

With a life insurance policy, only your interests on a buyout (partial or total) are taxed. You can opt for either a so-called single flat-rate taxation (PFU) or integration with income tax (IR). However, regardless of the tax option chosen, social security contributions of 17.2% are applied.

Duration of ownership of your contract

Share of “net outstandings” *

less than 150,000 €

Share of “net outstandings” *

over € 150,000

Less than 8 years old12.8% or IR
Over 8 years **7.5% or IR12.8% or IR
+ 17.2% social security levy

* “Net outstandings” = total premiums paid on all policies of the insured – total redemptions made (share of capital). This amount is appreciated on 31/12 of the year preceding the redemption, regardless of the date of payment of the premiums.

** Reduction of 4,600 euros (for singles) and 9,200 euros (for married couples) on the interest portion. It is applied first on products taxable at 7.5% then on those taxable at the rate of 12.8%. If taxation on the progressive scale of income tax is chosen for year N, this express and irrevocable option is global: all income in year N falls within the scope of the single flat-rate deduction (dividends , capital gains, etc.) are subject to the progressive scale of income tax. This choice can be strategic depending on the tax bracket of your income.

Find out more about the application of the tax system for savings greater than 150,000 euros and the application of the flat tax as part of life insurance.

Brief reminder on income tax (IR)

The taxable income (R) of your household is to be divided by the number of tax shares (N). You then get the family quotient. This corresponds to the amount subject to the marginal tax rate.

As a reminder, the first two children add 0.5 tax share each, the following children add 1 share each. Certain situations give the right to an additional half-share (single parent, veteran, disability, etc.)

For information, here is the progressive income tax scale for 2017:

Family quotient

Marginal tax bracket (2017 rate)

Quick calculation

Up to € 9,8070%0
From € 9,807 to € 27,08614%(R x 0.14) – (1,372.98 x N)
From € 27,086 to € 72,61730%(R x 0.30) – (5,706.74 x N)
From € 72,617 to € 153,78341%(R x 0.41) – (13,694.61 x N)
More than 153,783 €45%(R x 0.45) – (19,845.93 x N)

Example : suppose a married couple with a child where the taxable income of each spouse is 50,000 €. The household has 2.5 tax shares:

    • the family quotient is: (50,000 + 50,000) / 2.5 = € 40,000 (30% bracket)
  • the tax amount is:
      • detailed calculation: ((27,086 – 9,807) x 14% + (40,000 – 27,086) x 30%) x 2.5 = € 15,733.15
    • quick calculation: (100,000 x 0.30) – (5,706.74 x 2.5) = € 15,733.15

When to opt for income tax integration?

It is advantageous to choose the option of incorporating capital gains into income tax when the rate of your marginal tax bracket (including with the interest on your life insurance) is lower than the rate at flat-rate direct debit. This can be the case when your income is low (for example during your retirement).

Social security contributions

Of social contributions 17.2% is applied to your interests:

  • on the part in euro funds during the annual payment of your interest.
  • on the unit-linked share when you buy back.

Social security contributions are deducted directly by the insurer, which transfers them to the State.

Taxation during an estate

Taxation on amounts invested before age 70:

Taxation on amounts invested after 70 years:

Example

For more information on how estate insurance works, don't hesitate to read our article: life insurance: death and estate

What Nalo does for you

  • By investing in a Nalo life insurance contract, you benefit from the very advantageous taxation of life insurance, both during your life and for your estate
  • By investing more than € 250,000, you benefit from personalized advice from a wealth management advisor. He will help you on tax issues of life insurance but also on the taxation of the rest of your assets.

To find out more, visit our site, or make an investment simulation:

Julien Colombia

Julien Colombia

Wealth Management Advisor