Inheritance taxes: life insurance in danger, the Court of Auditors considers a reform

The Sages propose reducing inheritance taxes, particularly for brothers and sisters or children of the surviving spouse. And to lower the tax advantages of life insurance in return.

Capital Video: Inheritance duties: the Court of Auditors opens the door to reform, life insurance in the viewfinder

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Towards a reform of inheritance taxes? In its report published on September 25, and drawn up at the request of the chairman of the finance committee of the National Assembly Eric Coquerel (LFI), the Court of Auditors opens the way to a targeted reduction in this tax. The Sages of Rue Cambon judge thus “possible to carry out a reform of inheritance tax at constant yield by simultaneously pursuing the reduction of exceptional tax advantages and a targeted reduction in tax rates”. In summary: reduce the inheritance taxes which affect certain heirs in return for a reduction in certain systems which allow the wealthiest to free themselves from a large part of these rights. The whole thing, “in a public finance context which prohibits any tax reduction not financed by savings in spending.explains the Court.

Siblings overtaxed compared to children and grandchildren

But who would benefit from such a reform? For the Court, this involves reducing taxation on “collateral line” heirs. Namely during transmissions from brothers and sisters, nephews and nieces, cousins ​​or uncles and aunts. But not only that: the children of the surviving spouse in blended families would also benefit from a softening of rights, the Sages recommend. This, in order to “better take into account family and societal developments”.

Because as a reminder, while the heirs in the direct line – children and grandchildren if they inherit in place of their parent – benefit from a deduction of 100,000 euros then are taxed very progressively, at a rate of 5% if the taxable portion is less than 8,072 euros and up to 45% beyond 1,805,677 euros, the inheritance tax regime is clearly unfavorable to “collaterals”. Count on only 15,932 euros duty free for brothers and sisters and a tax rate of 45% from 24,430 euros of taxable assets, 7,967 euros reduction for nephews and nieces and 55% tax and finally only 1,594 euros deductible for distant relatives or third parties to the family with a 60% tax rate beyond this amount. A tax which affects, for example, the children of the surviving spouse – the stepchildren – of the deceased.

Life insurance reduces inheritance taxes in wealthy families

In order to finance a “relief” of these inheritance taxes, which the Court of Auditors does not quantify at this stage, the Sages therefore recommend reducing the advantages of exceptional tax measures. Among which are those of the Dutreil Pact, which allows, under conditions, to exempt the heirs of a family business from 75% of gift and inheritance taxes. And above all, concerning individuals, those of thelife insurance. A tax envelope which allows each of the beneficiaries of the contract to benefit from a reduction of 152,500 euros, then non-inheritance taxation, with tax rates of 20% for the first 700,000 taxable euros then 31. 25% beyond. All this, provided that the payments were made before the deceased turned 70. After this age, a reduction of 30,500 euros is shared between all beneficiaries of the contract(s), the possible balance being subject to inheritance tax.

And this favorable regime fully benefits the children and grandchildren of wealthy families. “The tax advantages provided by the exemptions increase with the amount of the inheritance: for direct inheritances of more than 2.5 million euros, they would be equivalent to a reduction of 15 points in the average tax rate. This regressive incidence is linked to the concentration of professional assets and life insurance contracts among the wealthiest households.explains the Court of Auditors in its report.

The latter therefore encourages precise quantification of the cost of the tax advantages of life insurance, which it also calls for to be officially classified as a tax expenditure. An estimate that would make it possible to work in detail on a reduction in the tax expenditure linked to the preferential life insurance regime and, ultimately, to finance the reduction in inheritance taxes for collateral heirs and children of blended families.