Life Insurance Taxation

In a partial withdrawal, only the gain component included in the amount withdrawn is taxable. The formula is: taxable portion = withdrawal amount x (total contract gains / total contract value). For example, if your contract is worth 50,000 euros including 10,000 euros in gains, and you withdraw 5,000 euros, the taxable portion will be 5,000 x (10,000 / 50,000) = 1,000 euros. This formula is applied automatically by the insurer. Thus, the older your contract and the more gains it has generated, the higher the taxable proportion of each withdrawal. This is why it is often wise to make regular partial withdrawals rather than a single total withdrawal.

Social contributions of 17.2% are in principle not recoverable. However, if you opt for the progressive scale and have deductible CSG, a fraction of 6.8% CSG can be deducted from your taxable income the following year. Important: this partial deductibility only applies if you have opted for progressive scale taxation and not for the flat tax. This choice must be evaluated globally across all your capital income. For a retired couple with modest taxable income, the option for the progressive scale combined with partial CSG deductibility can result in an effective tax rate well below the 30% flat tax, making this option particularly relevant in their situation.

Contributions made before September 27, 2017 remain subject to the former tax regime: the withholding tax (PFL) at degressive rates of 35% (0-4 years), 15% (4-8 years), and 7.5% (after 8 years), or the option for the progressive scale. Contributions made after this date fall under the 30% flat tax (or 24.7% after 8 years below the 150,000 euro threshold). Both regimes can coexist within the same contract, with each withdrawal being proportionally allocated. In practice, the insurer automatically calculates the breakdown between old and new contributions for each withdrawal operation, so the policyholder does not need to manage this complexity themselves.

The optimal strategy is to make calibrated partial withdrawals each year so as not to exceed the 4,600 or 9,200 euro allowance on gains. By spacing your withdrawals across multiple calendar years, you can recover considerable sums completely free of income tax. For example, a couple can withdraw each year an amount whose gain component does not exceed 9,200 euros, potentially representing tens of thousands of euros depending on the gain-to-capital ratio of their contract.

Life insurance is not subject to the real estate wealth tax (IFI) globally, but the portion invested in real estate assets (SCPI, OPCI, SCI) within unit-linked funds must be declared for IFI purposes. Concretely, if your contract contains 30% real estate unit-linked funds, 30% of the contract value falls within the IFI tax base. Euro funds and equity or bond unit-linked funds are not affected. Insurers provide an annual certificate specifying the real estate portion of your contract. For taxpayers subject to IFI, it may be wise to favor equity and bond unit-linked funds over real estate unit-linked funds to avoid increasing the taxable base, knowing that IFI applies from 1.3 million euros of net real estate wealth.

The tax treatment upon death depends on the age of the policyholder at the time of contributions. For premiums paid before age 70, each beneficiary benefits from a 152,500 euro allowance, then amounts are taxed at 20% up to 700,000 euros and 31.25% beyond (Article 990 I of the French Tax Code). For premiums paid after age 70, a global allowance of 30,500 euros applies across all beneficiaries, with excess amounts subject to standard inheritance tax, but gains generated after age 70 remain fully exempt from inheritance tax.