Life insurance: premiums paid before or after September 27, 2017, what changes for tax purposes

On September 27, 2017, life insurance premiums were divided into two tax regimes. Premiums paid up to September 26, 2017, are taxed according to the progressive income tax scale, with the option of a flat-rate withholding tax. Premiums paid from September 27, 2017, onward are subject to a flat rate: 12.8% of the % tax bracket, or 7.5% of the % tax bracket for policies held for 8 years or more under certain conditions, with the option of the progressive income tax scale. In both cases, social security contributions of 17.2% of the % tax bracket are generally added.

This page deals with contracts taken out with an insurer established in France and held by a French tax resident. It does not deal with:

• the progressive income tax scale and its brackets; ;
• non-residents; ;
• the annuity payout; ;
• the boxes on the income tax return.

One contract, two compartments

It is not the contract that bears the date, it is the premiums. The BOFiP writes that contracts taken out before September 27, 2017 "have two compartments": the first includes the premiums paid up to September 26, 2017 and the products attached to them, the second includes the premiums paid from September 27, 2017 onwards.

A contract funded both before and after this date therefore falls under both regimes. A contract where all premiums are paid after this date falls under only the second regime.

Tax is calculated upon partial redemption or termination of the contract. In the case of a partial redemption, premiums are only taxed in proportion to the amounts repaid. The allocation of a redemption between the two compartments is not addressed here.

The two regimes side by side

Bonuses paid up to September 26, 2017

The products are taxed according to the progressive tax scale, unless the policyholder opts for the flat-rate withholding tax. The rate of this withholding tax depends on the contract's duration. For contracts taken out since January 1, 1990, the BOFiP (version of June 30, 2022) uses the period between the date of the first payment and the date of partial redemption or termination:

For contracts taken out before January 1, 1990, the rates and the starting point of the term differ: they are not listed here and can be found in the BOFiP (Official Bulletin of Public Finances). Rates should be verified with the official source before any redemption.

Three points to know:

• This option is optional. According to the BOFiP (Official Bulletin of Public Finances), it must be done no later than when the income is received, and it is irrevocable. This version of the BOFiP is dated 30/06/2022.
• No mandatory deductions. The mandatory flat-rate levy, and its exemption, only apply to premiums paid from September 27, 2017 onwards.
• The PFL at 7.5 % applies to the gross amount, with a tax credit instead of the allowance. According to the BOFiP (Official Bulletin of Public Finances), income is "included in the tax base for the flat-rate withholding tax (PFL) at its gross amount." Taxpayers who opt for the PFL receive a tax credit "equal to the PFL rate of 7.5% multiplied by the amount of the unused allowance," up to the limit of income subject to the PFL. This credit is applied against the income tax due for the year, and if it exceeds the tax due, the excess is refunded (BOI-RPPM-RCM-20-10-20-50, paragraphs 330 to 340).

A calendar reference point. For a contract taken out since January 1, 1990, the BOFiP (French Official Tax Bulletin) uses the period between the date of the first payment and the date of redemption or termination. A contract containing premiums paid before September 27, 2017, received its first payment before that date: as of October 17, 2026, more than 8 years will have passed since that first payment. For a contract taken out before January 1, 1990, the starting point for the period is the subscription date, a rule that the page does not elaborate on.

Bonuses paid from September 27, 2017

The flat-rate system is the rule, unless the option for the scale is chosen:

• Contract of less than 8 years. The insurer withholds a non-final tax of 12.8% of the tax due. Upon filing the tax return, the proceeds are taxed at 12.8% of the tax due or, by overall election, according to the applicable tax scale. Any excess withholding is refunded.
• Contract of 8 years or more. The insurer withholds a non-final tax of 7.5% of the taxable income (%), unless an exemption applies. Upon filing the tax return, the allowance is applied, followed by the rate of 7.5% of the taxable income (%) under certain conditions, or 12.8% of the taxable income (%) on the portion not eligible for the allowance.

Exemption from withholding tax is possible if the reference tax income for the year before last is less than €25,000 (single person) or €50,000 (couple filing jointly). The deadline for requesting exemption should be verified with the official source and the paying institution.

The €150,000 threshold and previous bonuses

The 7.5% % rate depends on the total amount of premiums not refunded as capital, across all contracts. This amount is assessed as of December 31st of the year preceding the redemption, with a threshold of €150,000. When this amount does not exceed €150,000, the products are fully eligible for the 7.5% % rate.

Premiums paid before September 27, 2017, are included in the calculation of this threshold. The BOFiP (French Official Tax Bulletin) refers to "the portion of this amount corresponding to premiums paid before September 27, 2017" (paragraph 150) and provides a calculation of this portion. This page does not provide any figures beyond the threshold.

What both compartments have in common

• Social charges. In principle, the rate is 17.2% on life insurance gains. For survivor's annuity and disability savings contracts, it is 18.6%. The allowance does not reduce them.
• The annual allowance €4,600 (single person) or €9,200 (married or civil union couple filing jointly), for a contract of 8 years or more. It is granted once for all your contracts and cannot be carried over from one year to the next.
• The order in which the abatement is applied : first on the products taxable at the scale, therefore those of the premiums before September 27, 2017 without option for the PFL, then on the fraction taxable at 7.5 %, then on the balance taxable at 12.8 %.

Contracts signed before 1997

The service-public.gouv.fr fact sheet deals separately with contracts taken out before September 26, 1997, with exemptions under certain conditions, in particular for premiums paid before October 10, 2019 on a contract taken out before January 1, 1983. It should be read before any redemption on a contract from that period.

Numerical example (fictitious profile)

Situation. Claire and Julien, married and filing jointly, tax residents of France, are considering a redemption in 2026. Two contracts are under consideration, presented here as two separate and not cumulative scenarios. Contract A was taken out in 2010, its first payment was also in 2010, and it only contains premiums paid up to September 26, 2017. Contract B was taken out in December 2017, its first payment was also in December 2017, and it only contains premiums paid from September 27, 2017 onwards. Assumptions: the redemption takes place in 2026, after December 31, 2025, which brings the term of Contract B to 8 full years; each redemption contains €10,000 in proceeds; the total of premiums not refunded remains less than or equal to €150,000 on December 31, 2025. The couple does not opt for the scale, has no other life insurance product this year and does not use the €9,200 allowance in any other case; on contract A, they opt for the PFL at 7.5 % for all products.

Issue. Understanding how the date of the bonuses changes the mechanism.

Strategy. Calculate, for each scenario, the amount due. For contract A, the tax credit is equal to 7.5 % multiplied by the unused allowance (€9,200), within the limit of the income subject to the flat-rate withholding tax. The BOFiP (Official Bulletin of Public Finances) addresses a similar case (paragraph 360, case no. 2).

Result.

For contract B, the €750 advance payment exceeds the tax by €60: the excess of €690 is refunded. For contract A, the €690 tax credit reduces the tax from €750 to €60. Under these assumptions, both totals are identical, at €1,780. This example shows that the premium payment date changes the calculation (gross base with tax credit, or base after deduction; tax withheld or not), not that one contract costs less than the other in all cases. These profiles are hypothetical, and the assumptions simplify the situation. The figures illustrate the calculation and do not predict your final result.

What changes depending on your situation

• The date of each of your bonuses : a single contract can combine the two systems.
• The choice, for older bonuses, between the scale and the PFL, and the duration of the contract since the first payment.
• The total of your unrefunded premiums, across all contracts, compared to the threshold of €150,000.
• Your family situation : a tax reduction of €4,600 or €9,200.
• Your tax residence : a non-resident is not covered by this page.

The rule depends on your situation. No results are guaranteed.