Life insurance: after 8 years, use your allowance

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Do you hold a life insurance contract that is over 8 years old? Take the opportunity to purge the added value. The explanations of Gilles Bellir, Director General of Placement-direct.fr.

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At the start of the year you may have read the latest situation of your life insurance contract. The opportunity to measure its performance but also, if it is over eight years old, to take advantage of it to lighten it from all or part of its capital gains. Because after a period of eight years, life insurance allows you to benefit from a reduction each year during a withdrawal (called repurchase by insurers). This exemption, which applies to gains, is 4,600 euros for a single person and 9,200 euros For a married couple or PACS subject to common taxation. It therefore makes it possible to significantly reduce the weight of taxation during a withdrawal.

Make a withdrawal, then a payment

And even if you don’t need the funds, it would be a shame not to take advantage of this reduction by making a withdrawal followed by a payment. This round trip will then make it possible to save future tax. Indeed, by this trick, you transform all or part of the gains of your contract, normally taxed, in payments which will not be taxed during a next withdrawal (the day you really need the funds).

The amount of the savings carried out may then represent up to 1,178 euros, the amount of the lump sum debit which would apply during a withdrawal (7.5% or 12.8%) within the limit of the annual allowance from which you can benefit (4,600 euros or 9,200 euros). To take full advantage of this operation, three steps are to be observed.

Select the contract to be redeemed

Even if it means serving the capital gains of your life insurance contracts, you might as well take the opportunity to reorganize your investments a little. You have an interest in drawing priority from your life insurance contracts over eight years which are the least competitive in order to better place this savings better.

These are generally contracts whose funds in euros are the least generous, which have a limited selection of investment media in units of account and whose costs are significant.

Calculate the optimal amount of withdrawal

Your life insurance contract is made up of payments, but also gains (if it is in capital gain). The withdrawal that you make from this contract is exactly this distribution. By retaining for example a distribution of 80 % payments and 20 % of earnings, a withdrawal of 1,000 euros would then be made up of 800 euros in payments and 200 euros in winnings.

To optimize the amount withdrawn from your contract, you must however stop the share of gains at the allowance you benefit from: 4,600 euros or 9,200 euros for a couple. To calculate the maximum amount to be collected, divide this reduction by the share of earnings from your contract (20% in our example).

A single person can then withdraw up to 23,000 euros (4,600 euros / 20%) in income tax franchise (46,000 euros for a couple).

Attention ! The amount of exempt withdrawal withdrawals is appreciated for all the withdrawals made during the year, on all the contracts of the tax household!

Replace the funds on a contract without entry fees

Purge the capital gains on your life insurance contracts is a good initiative that will allow you to be less taxed the day you make a significant withdrawal, for example to finance a real estate purchase. But beware of what it does not lead to additional costs for your savings!

For this, favor a repayment on a more competitive life insurance contract than that which has been the subject of withdrawal and especially which does not apply any costs on the payments. It would indeed be a shame that the tax advantage provided by the operation was erased by costs.