Chamila, reader of capital, addresses the following question: “My father placed 25,000 euros on life insurance in 2024, on the advice of his banker, who told him that he could withdraw the sum at any time. But by taking over last week, the bank said it had to pay 35% tax, or around 8,500 euros. Is it possible to recover at least the starting capital? ”
Hello Chamila, and thank you for your question, which allows you to dispel frequent confusion. Indeed, let’s say it from the outset: you cannot be taxed on its capital invested in life insurance. Taxation only applies to the interests generated by the contract, never on the sums paid.
In life insurance, taxation always only applies to gains
During a withdrawal (also called buyback) in life insurance, we distinguish the bonuses paid (invested capital) and the products of the contract (the gains). However, taxation only applies to the part corresponding to the gains. For life insurance contracts open since 2018, they are subject to the single flat -rate levy (PFU, or “flat tax”), 30%, or 12.8% for income tax and 17.2% of social security contributions. This taxation applies in the event of a withdrawal before the eighth anniversary of the contract. After this period, it is possible to withdraw each year an amount of 4,600 euros (for a single person) without going through the tax box.
This is not yet the case for your father, since you specify that his contract was opened in 2024. Also, no tax advantage still applies in the event of a withdrawal, hence the taxation on the interests you mention. However, this taxation only concerns what your father has won: the capital initially paid remains intact. In your situation, it is therefore likely that your father has not “lost” 8,500 euros, but that he was imposed up to 30% on the gains of his life insurance. If for example his contract had gained value and posted 33,500 euros (25,000 euros of departure + 8,500 euros in earnings), the tax would apply on these 8,500 euros in earnings, or around 2,550 euros. And not 35% of 25,000 euros, or around 8,500 euros, as you mention. Let us repeat it to be clear: the starting capital of 25,000 euros will never be taxed.
In summary, Chamila, the capital initially placed on life insurance is never taxed. Only the gains generated by the contract are. We can only invite you to return to your father’s banking advisor so that the nature of the requested sum is specified to you.
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