There is two types of taxation for contract surrender. Indeed, if your payments were made before September 27, 2017:
They are then subject to the old taxation of life insurance redemptions.
Interest and capital gains will be taxed:
- To income tax (IR)
- On the basis of a lump-sum discharge (PFL) which decreases over time.
Your profit must be included in your income tax base. The PFL is an option. You must inform the insurer upon withdrawal. As it is discharging, it is withdrawn directly by the establishment. Also think about social security contributions. If your life insurance contract is more than 8 years old, you benefit from an annual allowance of € 4,600 on interest and capital gains (€ 9,200 for couples).
If your payments were made after September 27, 2017 :
The 2018 finance law changed the rules for the taxation of life insurance redemptions. The PFL has been abolished and the PFU (Single Lump Sum) has been put in place. This makes a total of 30%, because it includes not only a 12.8% tax, but also social security contributions established at 17.20%. If your life insurance is more than 8 years old, you still benefit from the reduction of € 4,600 per year on your interest and capital gains (€ 9,200 for a couple). Please note, the 150,000 “first” euros will be taxed at 7.5%. Any winnings paid in excess of this amount will be taxed.