Swiss army knife of savings, life insurance seduces by its multiple facets. The other side of the coin, the complexity of the product. An observation that also applies to taxes: if you have withdrawn money from your life insurance in 2021, no less than 12 boxes must be checked in the declaration!
Do you pay tax on your interest for the year 2021?
Nope! Like the stock savings plan, life insurance constitutes a tax envelope. As long as you don’t make withdrawals, or redemptions in the jargon, you don’t have to declare anything! Thus, contrary to the interests of the taxed bank books, neither the 2021 remuneration of your fund in euros nor the possible gains on your supports in units of account have to appear on your declaration of income.
When is income from life insurance taxable?
a becomes more complicated in the event of redemption in 2021, whether partial or total: the public treasury taxes gains from life insurance at the time of withdrawal. To calculate the income tax, the tax authorities will separate deposits and capital gains.
For a single and total surrender, the tax will relate only to the capital gain, therefore the difference between the sum of the payments, since the opening of your contract, and its final value, at the time of closing. For a partial redemption, you are taxed on the part of the capital gain included in the amount withdrawn, on a pro rata basis (1). Of course, in case of loss, you will not have to pay any tax!
Example. You have 10,000 on life insurance, so 4,000 capital gains. In other words: you have around 6000 ten years ago and the performance of the contract during this period of time has allowed you to earn 4000.
In the event of a total redemption in 2021, the tax authorities are only interested in the 4000: these are your taxable earnings. Which does not mean that they will be impossible (see next question)!
In the event of a partial withdrawal of 5,000, the tax authorities calculate the share of taxable gains (but not necessarily taxed) on a pro rata basis: the Public Treasury retains 2,000 of capital gains in this withdrawal.
When do you benefit from tax advantages?
Keep in mind the general rule: you always benefit from a reduction of 4600 euros (9200euros for a couple) if your life insurance policy has more than 8 years at the time of redemption. An abatement valid each year and which concerns only the share of winnings in your withdrawal, not the entire amount withdrawn.
Simple example: you withdraw a few thousand euros, in 2021, on life insurance for more than 8 years, and on which you have not paid money for several years. In this case, you do not pay tax on your earnings thanks to the allowance! You must still declare these winnings, theoretically pre-filled in the 2CH box: the Public Treasury itself applies the allowance.
Example. Let’s take the same simplified example, developed above. The contract is over 8 years old. Even if you withdrew 10000 in 2021, the share of taxable gains is only 4000. Less than the allowance! You will therefore not pay any income tax for this life insurance.
What earnings are affected by the flat tax?
There is an additional brick to this declarative Rubik’s Cube: the flat tax, or single lump sum levy (PFU): 12.8% income tax + 17.2% social security contributions. Entering into force in 2018, the simplified tax regime of the PFU concerns redemptions from payments made on life insurance since September 27, 2017, which must therefore be distinguished in the declaration.
Result: the taxman will have to sort your earnings according to two distinct calendars:
- depending on the opening date of your contract (more or less than 8 years old),
- according to the date of the payments: before or after September 27, 2017. Before: the old tax system. After: the flat tax.
Life insurance: why the taxation of your earnings is now so advantageous
How to sort out life insurance earnings?
Good news, to make the headache easier for you: your insurer has theoretically sent you a single tax form (IFU) in which he details the amounts he has communicated to the tax authorities. Your insurer should itself calculate, on a pro rata basis, the share of gains coming from your payments before or after September 2017. The amounts indicated in this IFU are logically pre-filled in your return.
In total, in this 2022 declaration, twelve boxes are potentially concerned by your earnings from life insurance, the section income from securities and movable capital.
Contracts over 8 years old? 5 boxes check!
If you have had life insurance for more than 8 years, do not apply the annual reduction yourself! It’s the tax department that takes care of that. Your winnings can appear in five different boxes. The first two concern the payments made before September 2017subject to the old tax regime:
- 2DH: the capital gains on which you have opted for the flat rate withholding tax (PFL) at 7.5%.
- 2CH: if you have waived the PFL, favoring taxation at the scale after abatement.
This choice, to opt for the PFL or not, you have already made it: you had to specify it to your insurer at the time of withdrawal in 2021. And this decision is irrevocable: you can no longer change your option at the time of the declaration. It is only a question of filling in the correct box, depending on the choice made at the time of redemption.
The other three boxes concern the payments made after September 2017:
- 2VV: gains from small contracts, imposs 7.5%.
- 2WW: earnings from large contracts (the portion of earnings exceeding 150,000 euros per taxpayer), subject to flat tax (12.8% income tax).
- 2UU: the total of the two amounts above, calculated automatically for the online declaration. If the insurer has already applied a deduction on these winnings, at the time of withdrawal, the amount is theoretically pre-filled in the box 2CK (tax installment reducing your tax payable).
Note: if your earnings are divided into several of these 5 boxes, the tax authorities will give you the benefit of the 4,600 euro reduction (per taxpayer) in priority over earnings from payments made before September 2017.
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Contracts less than 8 years old? 4 boxes check!
Zero reduction! For recently opened life insurance, taxation is less favourable, but the breakdown is simpler. The payments made before September 2017 are taxed according to the old regime, and are carried over to one of the following two lines:
- 2XX: if you opted for the PFL (35% or 15% depending on the period of detention) at the time of withdrawal.
- 2YY: if you waived the PFL at the time of withdrawal, preferring taxation at the progressive scale.
The share of gains made through deposits made after September 2017it is necessarily subject to flat tax (12.8%), and the winnings concerned must all be declared on line 2ZZ. The tax deduction, made during the withdrawal by the insurer, must be indicated to him in the box 2CK.
You must check and, if necessary, correct – the amounts entered, but you cannot change the tax option chosen: here again, the decision taken at the time of withdrawal (recorded on the IFU sent by your insurer) is irrevocable. Only option available: waive the flat tax, for the amounts concerned, by checking the 2OP box, but this will impact all of your investment income. An option above all interesting for non-taxable households.
3 bonus boxes for social contributions
Social security contributions (17.20%) are either deducted directly at source, each year from the fund’s earnings in euros, or at the time of redemptions (from the share of earnings withdrawn, taking into account the deductions already made). But, again, the date of the payments concerned and the option chosen at the time of withdrawal changes the situation.
The following boxes are probably pre-filled, but you must check the amounts entered. The lines linked to social security contributions being very complex, do not hesitate to rely on the tax statement provided by your insurer.
- 2CG: earnings from redemptions not giving right to the deductible CSG. In particular, this box is pre-filled with all winnings already subject to the flat tax (PFL), or those subject to the flat tax (PFU).
- 2DF: capital gains from payments made before September 27, 2017if you did not opt for the PFL when withdrawing: they open the right to the deductible CSG.
- 2BH: enter this box the earnings from payments made after September 2017 if you opt for the barme option (by ticking the 2OP box). If these amounts were pre-filled on line 2CG, they must be transferred to 2BH. Earnings filled with the 2BH entitle you to the deductible CSG if and only if you tick the 2OP box.
Namely: the tax authorities automatically calculate the deductible CSG (you have nothing to modify line 6DE).
Taxes and life insurance: should you correct the deductible CSG on your declaration?
(1) For more details on the taxation of life insurance.