As the end of the year approaches, discover the ultimate strategy to reduce your taxes on your life insurance, or even cancel it if you plan to withdraw your money. We help you see things more clearly.
What you need to understand before withdrawing money from your contract
December often rhymes with huge expenses and purchases… Usually, we need a lot of funds during this period.
Many French people draw on their life insurance contract for preparations and gifts related to the end of year celebrations.
If you are one of these savers, choose carefully the time when you plan to make your withdrawal in order to neutralize the taxation of your life insurance.
Dividing this withdrawal in two could significantly reduce the applicable taxspecifies the magazine Capital.
This effective strategy to avoid tax on your life insurance
After eight years of holding your contract, life insurance benefits from a favorable tax regime. In fact, each year, the subscriber is entitled to a income tax exemption up to €4,600 per year (€9,200 as a couple).
In other words, you can withdraw up to €4,600 from your life insurance each year without paying tax on the gains. Only social security contributions of 17.2% are due.
As highlighted in the columns of the economic magazine, “the tax reduction on withdrawals is renewed every January 1st”.
You can therefore make a redemption (or first withdrawal) at the end of December and another at the beginning of January in order to “benefit twice from the reduction “. To avoid tax, this is the strategy to absolutely adopt for all savers who are going to make a withdrawal.
Exemple-type
Let's take the case of an individual who wants to withdraw €50,000 from his contract. Of these 50,000, the payments correspond to €41,000, and the capital gains to €9,000.
If he makes this withdrawal in December, only the €9,000 of capital gains will be taxed. After deducting the annual allowance of €4,600, it will ultimately only be taxed on €4,400, at a rate of 7.5%.
He would then have to pay €330 in taxes. Its withdrawal will therefore only be up to €49,670.
For payments made after September 26, 2017, the insurer automatically withholds 7.5% social security contributions from each withdrawal made on the amounts invested.
To optimize his tax situation, he could consider dividing this withdrawal into two stages in order to benefit from a double reduction of €4,600.
He can, for example, withdraw €4,500. Here, he will not have to pay any tax, given that the redemption amount is less than the deduction of 4,600 euros.
He will then have to wait until January of the following year to make a second withdrawal of €4,500. Here too, he does not have to pay anything, given that his allowance has been restored.
A few days of waiting that make the difference
Waiting for a few weeks reduces your tax from €330 to €0. By adding the €1,000 corresponding to the “payment” part, the total withdrawal reaches €50,000 as planned.
