EconomyThe keys to optimizing the taxation of your life...

The keys to optimizing the taxation of your life insurance

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Life insurance has many advantages. It allows you to grow your savings by adapting to the degree of risk accepted, but it is also an essential transmission tool that largely escapes the tax authorities. Provided you are not in a hurry, it is possible to recover your accumulated nest egg in return for reduced taxation.

Certain grounds for exemption

First of all, remember that the Public Treasury will only claim its due from you in the event that you have obtained income from your life insurance during the tax year. In other words, you can spend years saving on your policy without paying any tax on it. It is only when you withdraw your earnings that the tax authorities will take their share. And it is here the gains that are taxable, in other words the interest generated, and not all of the capital recovered.

But certain exceptional situations make it possible to avoid all taxation, regardless of the date on which you receive the funds. This is particularly the case for an early withdrawal following a dismissal, recognition of disability, judicial liquidation of your company or your early retirement. These justifications apply to the contract holder as well as to their spouse or PACS partner.

Patience rewarded

Apart from these special cases, optimizing your life insurance is mostly a matter of patience. This contract is in fact designed to finance medium- or even long-term projects. Therefore, its level of taxation decreases over time. The oldest supports, subscribed before 1983 and more supplied since 2019, are exempt from tax. As for the contracts taken out before September 25, 1997, they benefit from a total or partial exemption, according to the date of the payments.

Conversely, a portfolio contracted after this date and no longer supplied since September 26, 2017 is taxed at 35% if the funds are withdrawn before four years of detention, 15% between four and eight years and 7.5 % beyond. Social security contributions are also added (17.2%).

Finally, if you have funded your life insurance after this pivotal date, you are in principle subject to the single flat-rate deduction (PFU) implemented in 2018. When collecting your earnings, the insurer deducts 12.8% for contracts of less than eight years and 7.5% beyond. In the latter case, it is only if your capital exceeds 150,000 euros that the fraction greater than this amount will still be subject to the rate of 12.8%. Be careful, here again, social security contributions (17.2%) will have to be added anyway. In addition, an annual allowance of 4,600 euros (or 9,200 euros for a married or civil partnership) applies as a bonus for any withdrawal of funds made after eight years of contract.

The most advantageous calculation

If the single flat-rate deduction now applies automatically to all capital income, the legislator leaves savers the possibility of opting for taxation at the progressive scale of income tax (by checking the box necessary in the annual declaration) which can sometimes be more advantageous. But be careful, this option is global and will therefore concern all of your interests, dividends and other capital gains collected in the same year.

To decide, you have to compare your tax rate. Thanks to the income tax scale, even the most modest households can receive the earnings of their life insurance while remaining tax-free. If you fall in the second tax bracket at 11%, it is also more advantageous to opt for the progressive scale, unless you take advantage of the PFU at 7.5% (withdrawal of funds after 8 years). The most taxed households, on the other hand, have every interest in keeping the single flat-rate levy.

Your life insurer or your financial advisor can help you determine the date and the most advantageous terms of contract surrender in terms of taxation.

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