Life insurance is a real Swiss army knife and seduced by its multiple facets. Despite all its advantages, the product can be complex, particularly when it comes to taxes. For this 2024 declaration, if you withdrew money from your life insurance in 2023, no less than 12 boxes must be checked!
Are you paying tax on your interest for the year 2023?
No! Like the Stock Savings Plan, life insurance constitutes a tax envelope. As long as you do not make withdrawals, or redemptions in the jargon, you do not have to declare anything! Thus, unlike the interest on tax-advantaged bank accounts, neither the 2023 remuneration of your fund in euros nor any gains on your unit-of-account funds appear on your income declaration.
When is life insurance income taxed?
it gets complicated in the event of a buyout in 2023, whether partial or total: the Public Treasury taxes the gains from life insurance at the time of withdrawal. To calculate income tax, the tax authorities will separate deposits and capital gains.
For a single and total redemption, the tax will only apply to the capital gain, therefore the difference between the sum of the payments, since the opening of your contract, and its final value, at the time of closure. For a partial redemption, you are taxed on the part of the capital gain included in the amount withdrawn, pro rata. (1). Of course, in the event of a capital loss, you will not have to pay any tax!
Example. You have 10,000 on life insurance, including 4,000 in capital gains. In other words: you are around 6000 ten years ago and the performance of the contract during this period of time allowed you to earn 4000.
In the event of a total redemption in 2023, the tax authorities are only interested in the 4000: these are your taxable earnings. Which does not mean that they will be taxed (see next question)!
In the event of a partial withdrawal of 5000, the tax authorities calculate the share of taxable gains (but not necessarily taxed) pro rata: the Public Treasury retains 2000 of capital gains in this withdrawal.
When do you benefit from tax advantages?
Keep in mind the general rule: you benefit in all cases from a reduction of 4600 euros (9200 euros for a couple) if your life insurance contract has more than 8 years at the time of redemption. A reduction valid each year and which only concerns the share of winnings in your withdrawal, not the entire amount withdrawn.
Simple example: you withdraw a few thousand euros, in 2023, on life insurance of more than 8 years, and on which you have not paid money for many years. In this case, you do not pay tax on your winnings thanks to the reduction! You must still declare these winnings, theoretically pre-filled in box 2CH: the Public Treasury itself applies the reduction.
Example. Let us return to the same simplified example, developed above. The contract is over 8 years old. Even if you withdrew 10,000 in 2023, the share of taxable earnings is only 4,000. Less than the reduction! You will therefore not pay any income tax for this life insurance.
What gains are affected by the flat tax?
Added an additional brick to this declaration Rubik’s Cube: the flat tax, or single flat-rate levy (PFU): 12.8% income tax + 17.2% social security contributions. Entered into force in 2018, the simplified tax regime of the PFU concerns redemptions resulting from payments made on life insurance since September 27, 2017, which must therefore be distinguished in the declaration.
Result: the tax authorities will have to sort your earnings according to two distinct calendars:
- depending on the opening date of your contract (more or less than 8 years old),
- depending on the date of payments: before or from September 27, 2017. Before: the old tax regime. After: the flat tax.
Life insurance: why the taxation of your earnings is now so advantageous
How to sort life insurance earnings?
Good news, to make the puzzle easier for you: your insurer has theoretically sent you a single tax form (IFU) where it details the amounts it has communicated to the tax authorities. Your insurer must itself calculate, pro rata, the share of earnings coming from your payments before or after September 2017. The amounts indicated in this IFU are logically pre-filled in your declaration.
In total, in this 2023 declaration, twelve boxes are potentially affected by your earnings from life insurance, the section income from securities and movable capital.
Contracts over 8 years? 5 boxes checked!
If you have had life insurance for more than 8 years, do not apply the annual reduction yourself! The tax authorities are responsible for this. Your winnings can appear in five different boxes. The first two concern payments made before September 2017subject to the old tax regime:
- 2DH: capital gains on which you have opted for the flat-rate withholding tax (PFL) at 7.5%.
- 2CH: if you have renounced the PFL, favoring taxation at the scale after reduction.
This choice, to opt for the PFL or not, you have already made it: you must specify this to your insurer upon withdrawal in 2023. And this decision is irrevocable: you can no longer change options at the time of declaration. It is simply a matter of filling in the correct box, depending on the choice made at the time of redemption.
The other three boxes concern payments made after September 2017:
- 2VV: earnings from small contracts, taxed 7.5%.
- 2WW: winnings from large contracts (the share of winnings exceeding 150,000 euros per taxpayer), subject to flat tax (12.8% income tax).
- 2UU: the total of the two amounts above, calculated automatically for the online declaration. If the insurer has already applied a deduction to these winnings, at the time of withdrawal, the amount is theoretically pre-filled in the box 2CK (tax deposit reducing your tax payable).
Please note: if your earnings are distributed across several of these 5 boxes, the tax authorities will give you the benefit of the 4,600 euros deduction (per taxpayer) in priority over earnings from payments made before September 2017.
Contracts of less than 8 years? 4 boxes to check!
Zero reduction! For recently opened life insurance policies, the tax system is less favorable… but the breakdown turns out to be simpler. THE payments made before September 2017 are taxed according to the old regime, and are reported in one of the following two lines:
- 2XX: if you opted for the PFL (15%) at the time of withdrawal.
- 2YY: if you renounced the PFL at the time of withdrawal, preferring taxation on a progressive scale.
The share of gains made through deposits made after September 2017it is necessarily subject to flat tax (12.8%), and the winnings concerned must all be declared on the line 2ZZ. The tax deduction, made upon withdrawal by the insurer, must be indicated in the box 2CK.
You must check and possibly correct – the amounts entered, but you cannot modify the tax option chosen: here again, the decision taken at the time of withdrawal (recalled on the IFU sent by your insurer) is irrevocable. Only option available: waive the flat tax, for the amounts concerned, by checking the 2OP box, but this will impact all of your investment income. A primarily interesting option for non-taxable households.
2024 deadlines: until when can you complete your tax return?
3 bonus boxes for social security contributions
Social contributions (17.20%) are either deducted directly at source, each year from the remuneration of the fund in euros, or at the time of redemptions (on the portion of earnings withdrawn, taking into account the deductions already made). But, here again, the date of the payments concerned and the option chosen at the time of withdrawal changes the situation.
The following boxes are probably pre-filled but you should check the amounts entered. The lines linked to social security contributions being very complex, do not hesitate to rely on the tax statement provided by your insurer.
- 2CG: the gains from redemptions not giving entitlement to deductible CSG. In particular, all earnings already subject to the flat-rate withholding tax (PFL), or those subject to the flat tax (PFU), are pre-filled in this box.
- 2DF: capital gains from payments made before September 27, 2017if you did not opt for the PFL when withdrawing: they entitle you to the deductible CSG.
- 2BH: report in this box the gains from payments made after September 2017 if you opt for the scale option (by checking the 2OP box). If these amounts were pre-filled on line 2CG, they must be carried over to 2BH. Winnings filled in 2BH entitle you to deductible CSG if and only if you check the 2OP box.
Please note: the tax authorities automatically calculate the deductible CSG (you do not need to modify anything on line 6DE).
Taxes and life insurance: should the deductible CSG be corrected on your declaration?
(1) For more details on life insurance taxation.