As a subscriber or beneficiary of life insurance, do you have to make a tax declaration? This question deserves to be asked because the taxation of the life insurance contract is subject to conditions. And how to declare your life insurance? Discover the steps to take to be in good standing with the tax authorities. Also find out about all the intricacies of this type of savings.
What you need to know about life insurance taxation
At any age, an insured can take out life insurance. This contract allows the beneficiaries to live after the death of the insured. The amount of life insurance can also help finance the funeral in the event of death before the end of the contract.
Also note that if you do not make any redemptions during the term of your life insurance contract, your earnings are exempt from income tax. On the other hand, when you make a withdrawal or a partial surrender of the contract in the event of closure, and if you ask to recover all of your savings (capital), your gains then become taxable.
Redemption is an operation allowing the subscriber to obtain full payment of the capital before the end of the contract. This savings results from the payments made by the subscriber. A distinction must be made between two types of redemptions:
- the total surrender which terminates the contract;
- and the partial surrender which does not modify in any way the effects of the contract or its anteriority. The amounts invested continue to earn interest. And they are always transmissible outside the estate in the event of the subscriber’s death.
To note : the redemption request must be made exclusively in writing. Use a form provided by the insurance or express your wish by registered letter. The redemption of life insurance is possible at any time provided that the contract is redeemable or that the beneficiary of the contract has not accepted the benefit of life insurance. The withdrawal, redemption of the insurance (partial or total) is then imposed.
What is the purpose of the tax receipt in the declaration of life insurance for taxes?
For your life insurance, the tax authorities take care of everything by directly reporting the information on your declaration. It is the insurers who communicate the information to him.
When you receive your tax receipt by post at your home, you just need to make sure that the amounts reported are correct. You do not have to take any particular steps to declare your life insurance for taxes.
The tax receipt is a document that lists the interest and capital gains redeemed on your life insurance to be declared to taxes. Receipt of the tax receipt is effective in the event of withdrawal from the contract(s) or payment into your retirement contract. Keep the document carefully because it also serves as proof to be produced to the tax services, in the event of an audit.
Namely: withdrawals made on life insurance contracts must be declared to the Public Treasury. However, not all contracts give rise to additional taxation. For example, when the interest redeemed on your contract of more than 8 years does not exceed the annual allowance of 4600 euros or 9200 euros, you have no additional taxation.
How to declare your life insurance to taxes?
In practice, be aware that the gains obtained from your life insurance are to be entered on the main income tax return. This is Cerfa form n°2042.
- online 2DH, indicate the amount of income from life insurance contracts and capitalization bonds;
- online 2CH, indicate the amount of income acquired or recognized from 1er January 1998.
How to declare the life insurance of which one is a beneficiary?
Life insurance processed outside the estate
If you are the beneficiary of life insurance, it is normally treated outside the estate:
- for premiums paid before age 70, a specific allowance applies per beneficiary (152,500 euros) and the insurer deducts the tax directly;
- for premiums paid after age 70, an overall allowance of 30,500 euros applies to all contracts. And a 2705-A contract must be subscribed in order to liquidate the rights (certificates of discharge) or obtain a certificate of non-exigibility.
On the other hand, when an insured person has taken out several contracts for the benefit of several beneficiaries, the premiums for all the beneficiaries paid by the subscriber after the age of 70 should be aggregated. And this, to apply the abatement, which is distributed among the non-exempt beneficiaries in proportion to the share due to them in the taxable premiums.
And some contracts are fully tax-exempt:
- those subscribed before November 20, 1991 and whose premiums were paid before October 13, 1998;
- for these same contracts whose premiums were paid after October 13, 1998, there is a 20% reduction (152,500 euros per beneficiary);
- for policies taken out after November 20, 1991 and for which the premiums were paid before October 13, 1998, no tax from before age 70. On the other hand, after age 70, there are transfer duties on death on the fraction of premiums (DMTG) exceeding 30,500 euros. The calculation is made according to the relationship;
- and for these same contracts whose premiums were paid after October 13, 1998, a 20% reduction before age 70 (152,500 euros per beneficiary) and DMTG after age 70 must be taken into account.
Life insurance is part of the estate in a partial or total way
In the absence of a designated beneficiary, the capital is reintegrated into the deceased’s estate when the contract ends.
And for successions opened from 1er January 2016, the surrender value of a life insurance policy is not included for tax purposes in the assets of the marital community when it is liquidated. But on condition that the contract was subscribed with common funds and is not devoid during the liquidation of the conjugal community following the death of one of the spouses. On the other hand, the quality of the designated beneficiaries is irrelevant.
Life insurance does not therefore represent an element of estate assets to calculate the transfer duties owed by the heirs of the predeceased spouse.
Read also :
- How does life insurance work in the event of death?
- How long to unlock life insurance?
- How to know the amount of life insurance?
- Taxation of life insurance
- Can I have several life insurance policies?