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The taxation of life insurance can be complex when the subscriber makes redemptions on his contract. They can trigger taxation depending on when they were made, but also taking into account the date of opening of the contract, the amount of the premiums and the date on which they were paid. The Single Tax Form (IFU) facilitates the taxpayer’s task, but he must check certain lines on his tax return.
Completing your tax return is no picnic. Even if it must be recognized that with the establishment of the withholding tax and the pre-filled tax form, the procedure is a little more flexible than before. If you have subscribed to investments such as life insurance and you have made redemptions, you must bear in mind the specific taxation mechanism of this savings product and check the accuracy of the information provided on your declaration. .
Are life insurances taxable?
Life insurance is only subject to tax when the subscriber makes withdrawals from his or her contracts. Insurers speak in their jargon of “surrenders”. In other words, it is not the payments that are taxed but the outputs on the contract. If the subscriber makes no redemption during the term of the contract, he will have nothing to declare for taxes. Earnings generated by supports in euros or units of account do not appear on the tax return. And for social contributions, it is the insurer who is responsible for calculating and deducting them every year for the fund in euros and at the time of a redemption by the subscriber for the supports in units of account.
What income is taken into account for tax?
It is when the subscriber makes a total or partial surrender of his contract in order to recover his savings that the accumulated gains become taxable. It is also at this point that the tax complexity of life insurance is revealed because the level of taxation is not uniform and depends on the date of the payments made, the age of the contract and the amount sums invested. The good news is that the insurer must now provide the subscriber with a Single Tax Print (IFU) which details the amounts communicated to the administration and calculated according to the tax rules in force. The amounts shown are normally listed in the declaration pre-filled by the tax authorities. The insured must therefore check that the amounts indicated are identical to those of the IFU and, if necessary, mention and correct the errors noted.
What taxation for capital gains?
It is the gains produced by the payments made on the contract that are subject to tax. In stock market investments, they are referred to as capital gains. By extension, this term is often applied to life insurance even if technically the tax authorities prefer the term products.
To understand the mechanics of taxation, it is necessary to distinguish according to whether the contract was opened more or less than 8 years ago. The implementation of the Single Flat-rate Withholding, also called “flat tax”, in 2018 introduced an additional parameter by distinguishing whether payments were made on the contract before September 27, 2017 or after. Finally, the amount of the total outstanding amount on all the contracts held by the subscriber, depending on whether it is greater or less than 150,000 euros, also has an impact on the level of taxation.
For a redemption made on a contract of less than 4 years
The taxpayer can choose between two types of taxation. The most frequently chosen is the so-called flat-rate liberating levy (PFL) to which are added social levies. If a surrender was made less than 4 years after the opening of the contract and no payment was made on the contract after September 27, 2017, the level of taxation will be 35% of PFL + 17.2 % of social contributions, i.e. a total of 52.2%. The taxpayer can optionally choose to be subject to the progressive scale of income tax.
If payments have been made after September 27, 2017, the flat tax will apply to the products generated by these payments. It is then a flat rate of 12.8% + 17.2% of social security contributions, i.e. a total of 30% that comes into play. In this case, the taxpayer can also choose to be subject to the progressive scale .
For a redemption made on a contract of more than 4 years but less than 8 years
If no payment has been made on the contract after September 27, 2017, a PLF of 15% applies to which the 17.2% social security contributions are added. That is a total of 32.2%. Here again the taxpayer can opt for the progressive scale.
If payments were made after September 27, 2017, the 30% rate applies as in the previous situation. The possibility of opting for the progressive scale is still valid.
For a redemption made on a contract of more than 8 years
If no payment has been made after September 27, 2017, a PLF of 7.5% applies plus the 17.2% social security contributions, i.e. a total of 24.7%. In this specific case, taxation takes place after application of a specific allowance for life insurance. If payments were made after September 27, 2017, a distinction must be made depending on whether the outstanding amount of all the contracts taken out by the taxpayer is less or more than 150,000 euros. If it is lower, the rate of 24.7% of the PLF comes into play. If it is higher, the flat tax applies.
What is the deduction applicable on withdrawals beyond 8 years?
The tax maturity of life insurance takes place after 8 years of holding the contract. The tax is softer and above all the taxpayer benefits from a specific allowance renewable every year. It is 4,600 euros for a single person and 9,200 euros for a couple subject to joint taxation. The allowance applies to the share of proceeds generated on the contract and not the entire amount withdrawn at the time of redemption. The taxable part is indicated in the tax return by the tax authorities and it is they who apply the allowance. It is not up to the taxpayer to calculate it.
What boxes should be checked on your tax return?
Depending on the tax configuration of his contract, the taxpayer must check that the amounts reported by the administration are correct. He can use the IFU sent to him by his insurer. If the taxpayer has opened several contracts with different insurers, he will receive several IFUs to check his declaration and add up the different incomes of the same nature but held in different establishments.
For contracts of less than 8 years
For payments made before September 27, 2017, look at line 2XX for taxpayers who have chosen the PFL, at 35 or 15% depending on the duration of the contract.
The 2YY line for taxpayers who have preferred the progressive income tax scale.
For payments made after September 27, 2017 and whose earnings are subject to flat tax, the taxpayer will have to look at line 2ZZ. It is also necessary to check box 2CK which corresponds to the share of flat tax already paid by the insurer to the tax authorities during the redemption. The amount must correspond to 12.8% of the amount indicated on line 2ZZ.
For contracts over 8 years
For payments made before September 27, 2017, line 2DH must be checked, which concerns the products on which the taxpayer has opted for the 7.5% withholding tax.
The 2CH line for taxpayers who have opted for the progressive scale.
For payments made after September 27, 2017, look at the 2VV line for contracts below 150,000 euros and subject to a flat rate deduction of 7.5%. For contracts over 150,000 euros and subject to a fixed levy of 12.8%, it is the 2WW line that will have to be looked at.
Line 2UU normally takes the total of lines 2VV and 2WW. It is up to the taxpayer to verify that the amount is correct.
For social contributions
Social contributions are deducted upstream by the insurer. Normally these lines are already pre-filled in the tax return. Line 2CG concerns products already subject to PFL or flat tax and not eligible for deduction of the Generalized Social Contribution (CSG). The 2DF line includes income from payments made on a contract after September 27, 2017 and which give rise to the CSG deduction. Finally, line 2BH concerns income from payments made after September 27, 2017 for taxpayers who have opted for the progressive scale.
Because it is indeed possible not to opt for the flat tax and prefer the progressive scale by checking the 2OP box, but this choice will impact all the movable income of the taxpayer and not only those concerning life insurance. A decision which will therefore have to be carefully considered according to the tax situation of the taxpayer.