Life insurance, what tax after 70 years?
Many savers consider that life insurance is no longer attractive after 70 years. It is not so. Even if the tax framework for life insurance is less favourable after this age, opening or funding a contract after 70 years remains still profitable. Let’s see together the (multiple) interests of life insurance after 70 years. Taxation, tax deduction, calculation of inheritance tax, we explain everything to you!
- Life insurance after 70 years: what taxation in the event of redemption?
- Life insurance after 70 years: what death tax?
- What is the tax deduction for life insurance after 70 years?
- How to calculate your life insurance inheritance tax after 70 years?
- Should I take out or make payments on life insurance after age 70?
- What is the tax on the death of payments made before age 70?
Life insurance after 70 years: what taxation in the event of redemption?
Life insurance has its privileged tax framework, whether in the event of the life or death of the insured subscriber when the capital will be transferred to the designated beneficiary (ies).
During the life of the contract, that is to say, during the savings phase and in the event of redemption, the member’s age has no impact on taxation.
Apart from any withdrawal, will deduct only social security contributions each year from the interest generated by the euro fund, namely the secure and guaranteed pocket of life insurance. They are currently set at 17.2%.
The gains generated by the units of account (within the framework of a multi-asset life insurance contract) will only be taxed in the event of withdrawal.
Only the interest and gains will be taxed and not part of the capital withdrawn when redeeming. The tax base depends on the distribution within the contract between payments made and income generated.
The taxation will then depend on:
- From the contract age: less than four years, between 4 and 8 years or more than eight years.
- From the moment the payments were made (since the Macron reform), namely before or after September 27, 2017.
In all cases, the insured may decide that the interest will be taxed through his income tax. Otherwise, the redemption will be subject to:
- A declining flat-rate deduction (PFL), when the buyback relates to payments made before September 2017,
- A single flat-rate levy (PFU) corresponding to the Macron flat tax, when the withdrawal concerns premiums paid after this date
After eight years, when the contract is at fiscal maturity, the insured person benefits from an annual tax allowance of € 4,600 on interest (€ 9,200 for a couple). Therefore, life insurance is an excellent tool for building up additional income for retirement, for example, which makes it a medium / long-term savings product.
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Life insurance after 70 years: what death tax?
When the insured dies, the criterion of the age at which his contract fund is very important. On this basis, the tax rules that apply when the capital is transferred to the beneficiary of the life insurance will be determined. The pivot takes place at age 70.
The rule is as follows: for the part of the premiums paid by the insured after his 70th birthday, the transferred capital will not be processed outside the succession, as is the case for payments made before this age. We say that the capital reintegrates the estate assets (after a global allowance that we will discuss next).
This rule emanates from article 757 B of the General Tax Code. On death, the fate of the capital held on the contract depends on this age criterion at the payments.
The second important data to know is that only the share of capital will return to the estate. Interest and earnings generated will be exempt! Therefore, the taxable base is only made up of contributions made by the member during his life, after his 70th birthday.
By way of illustration, let us take the example of an insured who would have paid € 50,000 in total on his contract after his 70th birthday. If on death the valuation is € 60,000, this means that € 10,000 in interest/gains have been produced. This amount will not be subject to any taxation, which is beneficial to the beneficiary (ies).
The fact that the capital reintegrates (after deduction) into the inheritance reflects the legislator’s desire to avoid cases where the insured invests, shortly before his death, all or part of his capital in life insurance to escape the legal devolution rules. (and the taxation of inheritance rights).
What is the tax deduction for life insurance after 70 years?
On the insured’s death, we have seen that the capital transferred to the beneficiary (ies) will reintegrate the estate assets (for the part of the premiums paid after 70 years), but not in full. Indeed, a global tax allowance of € 30,500 is provided for by law.
It is important to understand that this allowance is unique and that it is shared between all the beneficiaries mentioned in the clause. If the member has designated only one, the latter alone will benefit from the full reduction. On the other hand, if there are 2 or 3 beneficiaries, they will not benefit from an allowance of 30,000 euros each but a fraction of the overall allowance.
It is, therefore, only beyond this reduction that the capital will return to the estate and will be taxed based on the scale of inheritance tax. As a reminder, interest earned on the contract is exempt.
It should also note that this global allowance is linked to the insured person. Even if he has 3 or 4 life insurance contracts on his head, there will only be one allowance and not once per contract.
This allowance, therefore, allows the insured (having funded his life insurance contract after his 70th birthday) to transmit a little more than € 30,000 of capital in total tax exemption, which is far from being negligible.
In the end, life insurance is indeed, in terms of estate optimization, generally less attractive when the premiums have been paid after 70 years (rather than before). However, this allowance (and the interest exemption) still allows large sums to be transferred tax-free. There are many contracts with a surrender value of less than € 30,000.
How to calculate your life insurance inheritance tax after 70 years?
For the portion of the premiums paid after 70 years and beyond the general allowance of € 30,500, the transferred capital will join the estate assets of the deceased insured and will therefore pass before THE notary. The latter will apply the scale of inheritance tax: taxation will depend on the family relationship between the member and each beneficiary (if there are several).
Certain reductions are provided for by law. By way of illustration, the children (direct line succession) benefit from an allowance of 100,000 € on the part received. The brothers and sisters have a reduction of € 15,932 on the sums received.
As you will have understood, the further the beneficiary is from the insured, the higher the inheritance tax rate will be. It can go up to 45% in a direct line and 60% if the insured has designated a third party (a friend, for example) as the beneficiary. Brothers and sisters will be subject to a rate of 35% or 45% (depending on the capital received).
The scale can be progressive according to the sum received by each one.
Schedule of inheritance tax in direct line (taxation after deduction):
|Amount from:||Amount up to:|
|5%||€ 1||€ 8,072|
|10%||€ 8,072||€ 12,109|
|15%||€ 12,109||€ 15,932|
|20%||€ 15,932||€ 552,324|
|30 %||€ 552,324||€ 902,838|
|40%||€ 902,838||€ 1,805,677|
The spouse / pacsé partner is exempt from inheritance tax since the TEPA law of 2007.
Should I take out or make payments on life insurance after age 70?
Today, it remains very interesting to open life insurance even if you are over 70 years old. Even though the tax framework is less favourable (on death) when the premiums are paid after this age. The simple fact that the beneficiaries benefit from an additional allowance of € 30,500 justifies the subscription/funding of life insurance after this age.
Do not forget that all the payments you will make after 70 years will generate earnings and interest, which will be completely tax exempt at the time of the transmission of the life insurance after 70 years. Therefore, the life insurance framework is preferable here to invest in another savings product that would be taxed!
Finally, let us also mention some of the many advantages of life insurance, which apply to savers aged 30, 40 or 75:
- From the return perspective,
- The fact that life insurance can meet all kinds of objectives (security, profitability, the constitution of additional income, etc.),
- The variety of media available,
- The fact that your capital remains liquid (a partial or total redemption is possible at any time),
- Life insurance is suitable whatever your risk profile (prudent, dynamic, etc.).
Given the increase in life expectancy, the insured could continue to capitalize, after 70 years, for 15 or 20 years!
Our advice if you already have one (or more) life insurance contract funded before your 70th birthday: you might be tempted to make your new payments on it, for the sake of simplicity in particular. If your main goal is to optimize your future succession, we recommend taking out life insurance by opening a new contract instead. Indeed, if you feed an old contract when you are over 70 years old, the insurer will consider two pockets:
- The fraction of payments made before age 70,
- That of payments made afterwards.
In the event of redemption, the levy may be split between the two pockets, which will reduce the value of the first, and therefore the amounts subject to preferable taxation of payments made before age 70.
Conversely, if you open a new contract, things will be clear for tax purposes, and you can designate one (or more) another beneficiary than the one mentioned in your main contract. It could be interesting to point out your spouse here since, being exempt from inheritance tax, he will not need the allowance applicable to each beneficiary when the contributions are made before the age of 70.
In doing so, you will be able to reserve the benefit of your open contract and fund before age 70 to beneficiaries who do not have a legal reduction, such as a third party or a person who does not have a direct line link with you.
If you want to open a new life insurance contract, compare them! Indeed, not all are equal in terms of performance, costs. By going through an online comparator, you will have access to the best offers and their terms and will thus be able to compare them effectively.
What is the tax on the death of payments made before age 70?
Payments made by the subscriber before his 70th birthday will be subject, upon death, to very favourable taxation. It is one of the main interests of life insurance here in that it allows the insured to optimize their succession.
The fiscal framework is defined here by article 990 I of the General Tax Code.
Life insurance is treated outside inheritance for the portion of premiums paid before the age of 70: it will not reintegrate the inheritance assets and will be subject to specific rules.
Each beneficiary designated in the clause will be entitled to an individual allowance of € 152,500 on the sums received, even if it is a third party. Beyond that, the taxation will be only 20% (up to € 852,000 received), then 31.25% (for the fraction exceeding this amount).
You will understand that life insurance allows, in this context, to transmit very large sums to a multitude of beneficiaries, all in total tax exemption. Even for the largest contracts, the rate of 20% (then 31.25%) is often preferable to that of the inheritance tax scale, especially for beneficiaries who are not in direct line with the deceased insured.
To further optimize your future succession, you will also be able to dismember the beneficiary clause of the life insurance by designating, for example, the surviving spouse as usufructuary and your children as bare owners.
Ultimately, even if the tax rules applicable to payments made before or after 70 years are different, it allows the insured to optimize his future succession.
Life insurance, what tax after 70 years?