Why taxing your income is so advantageous now

One of Macron’s five-year term major tax reforms, the “flat tax,” is four years old. so what ? For life policyholders, this anniversary is not trivial. This is the reason.

While inheritance taxes have taken hold in the 2022 presidential election, many French have rediscovered that life insurance is a powerful tool for avoiding inheritance taxes. However, life insurance is a double “tax range”. It may be an inheritance tax or an income tax.

By saving life insurance and undoing it after a few years, you can limit taxes on interest and capital gains (that is, monetary gains). For example, like a stock savings plan, life insurance guarantees a “soft” tax on capital income.

Life insurance: What income do you declare for taxes?

Please note, the money earned thanks to your life insurance returns is 17.20% and is systematically eligible for social security contributions. But for income tax, it all depends on the opening date and the payment date. However, good news for all savers. For the past few months, income tax has been limited to zero (0%), 7.5%, 12.8%, or 15%.

If life insurance is 8 years or older

Simple and basic: Whatever your payment schedule for this contract that has reached its “tax deadline” (more than 8 years after the start date of life insurance), you Annual allowance for income from life insurance..That is € 4,600 For one person and € 9,200 For couples. And be aware: this is certainly a valid reduction each year to the share of withdrawal revenue, not the withdrawal amount!

For example, if one-third of the contract is due to capital gains, one person can withdraw € 12,000 in 2022 without paying income tax. The tax authorities make a proportional distribution, which in this case counts € 4,000 (one-third of € 12,000). Reduction threshold, Zero tax..

Life Insurance: Why do you (often) have to stagger your withdrawals over the years?

And if you make Big withdrawalIn any case, taxation may be restricted if revenue is unacceptable. Mostly 7.50% and rarely 12.80%Unless you choose the option of gradual taxation (salary, retirement pension, etc.), if you are hardly or not taxed at all. In short, it’s a very favorable tax in all cases.

If life insurance is under 8 years old

Is life insurance blocked for 8 years? No, it’s a cliché! However, this cap is synonymous with reduction, so the eight-year cap clearly has a strong tax impact. Eight years ago, withdrawals were subject to income tax. But at what rate? Here’s some good news that has been overlooked in the last few months: No more withdrawals will be taxed at 35%!

The 35% flat rate tax (PFL) is a legacy of the old taxation of life insurance and is a single flat rate tax (PFU) with 17.2% social contribution and 12.8% income tax before switching to the flat tax. .. 2018 capital income (excluding tax-exempt investments).

Retirement: Save money by paying less taxes.. Compare 11 contracts

However, the 35% PFL associated with contracts of less than four years survived the entry into force of Flat Tax. why ? This is because the contract was signed before September 27, 2017, and income from payments made before that date remained taxed according to the old tax system. For simplicity, if you opened life insurance between 2014 and 2017, your withdrawals are still “claimed” with a 35% income tax.

Since the end of September 2021, no contracts are affected by this 35% PFL. All contracts affected by the old tax system are over four years old. gold, With this old scheme, PFL drops to 15% after 4 years of life insurance...

result : If your life insurance income is under 8 years old, either PFL (income from payments by the end of September 2017) or 12.80% flat tax will apply. Unless tax exemption, these rates are almost always better than the progressive income tax schedule. In other words, it’s two to one-third that of the 35% flat rate era.

Save over 60 euros with a withdrawal of 1,000 euros

example.. You have 10,000 euros in life insurance, but thanks to proper management, it quickly rose to 15,000 euros, which is one-third of the profits of this young contract. You withdraw € 1,000. The insurance company counts a revenue of 333 euros (one-third).Match 3 scenariosTo income tax:

  1. PFL removes 35% older version: 116.67 euros
  2. Withdrawal at 15% PFL: 50 €
  3. 12.8% flat tax withdrawal: 42.67 euros

In any case, you pay 17.2% Social contributionsThat is 57.33 euros (Some are probably already deducted from the annual interest rate over time). Therefore, with flat tax, the total taxable amount reaches 100 euros (42.67 + 57.33).

Life Insurance Benefits: Tax Reminders

  • Your life insurance 8 years or more ?? Mitigation.. Therefore, it is 0% except for large withdrawals.
  • Your life insurance Under 8 years old ?? You pay income tax (unless you are tax exempt and charge tax at) scale). At what rate?Either 12.8% (Flat Tax) Revenue from recent contracts or payments made after October 2017. 15% If the income is from an open contract and was paid between 2014 and 2017.
  • In all cases : Your income is subject to social security contributions (17.2%) and is collected annually for interest on the fund in euros or at the time of withdrawal for capital gains per account.

Life insurance: Taxation details for withdrawals