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A Capital reader asks us how to recover the money held on his life insurance, but leave as little as possible to the taxman. Here’s how to make a painless redemption on your contract.
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– After eight years, you benefit from an annual reduction of 4,600 euros on your earnings.
Gerard, reader of Capitalasks us the following question: “Hello, I have had life insurance for over 8 years. I would like to know how to withdraw my capital with the least fees and taxes to pay. For example, is it better to withdraw the entire amount at once or in several installments?”
Hello Gérard, and thank you for your question, which will allow us to remind you how to “withdraw” the money accumulated in your life insurance while paying as little as possible in taxes and fees. To begin with, you can exclude the latter: exit fees have in fact become very rare on the market. Insurers no longer charge for withdrawals, also called “redemptions”, in life insurance jargon.
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On the other hand, you will probably have to pay taxes. But good news, your contract is more than eight years old! After this point, the tax is in fact reduced. In concrete terms, you benefit from a reduction on your winnings of 4,600 euros (and 9,200 euros if you are a couple). This means that if what you have generated in earnings is less than this amount, you will not have to pay taxes on it. You will nevertheless be liable for 17.2% of social security contributions, which remain, despite the deduction, incompressible.
After winnings of 4,600 euros, a multi-year withdrawal is required
To pay as little tax as possible – apart from social security contributions – the strategy will consist of: “not to take out all your money at once, but on the contrary to stay below the allowance limit each year, and this for two, three or four years depending on the time needed“, advises Gilles Belloir, general director of Placement-direct.fr
To do this, you need to know the amount of your winnings, also called “capital gain”. To do this, you can call your insurer and ask an advisor directly. Otherwise, you will have to do a little calculation. Take your information statement, sent each year by the insurer. You will need the outstanding amount of your contract, and, in the section “tax information” from the accumulation of premiums paid but not reimbursed.
First step: to know the amount of your capital gain, you need to subtract the amount of premiums paid but not reimbursed from the outstanding amount. If the difference between the two is less than or equal to 4,600 euros, you can request a total redemption of your contract, i.e. withdraw everything at once. You will not have to pay taxes, because your gains remain below the allowance limit.
On the other hand, if the capital gain is greater than 4,600 euros, you will need to continue the calculation. Let’s imagine that the outstanding amount of your contract is 50,000 euros, and the cumulative premiums paid but not reimbursed is 40,000 euros: your capital gain is therefore greater than 4,600 euros, 10,000 euros. You simply need to divide this amount by the outstanding amount of the contract (here 10,000/50,000*100) which gives us 20%: your gains represent 20% of your total outstanding amount. Finally, you should divide the amount of the allowance by this percentage (4,600/20%), which gives us 23,000 euros here. You can therefore request a buyback of 23,000 euros to remain within the allowance, and this over at least three years to recover all of your gains (10,000 euros) without paying tax on them.
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