Partial redemption of life insurance: what portion of gains is taxable, and what portion is capital?

In the case of a partial withdrawal, only the gains are taxable. The entire amount you withdraw is not taxed: it is considered to include a portion of your premiums (the capital) and a portion of gains, in proportion to the value of the contract. The formula is set by the tax authorities. It is calculated using three figures: the withdrawal amount, the premiums paid (those not already reimbursed by a previous withdrawal, see below), and the total surrender value of the contract on the date of the withdrawal.

This page deals with the partial redemption of a French life insurance policy for a French tax resident. It does not cover annuity payouts, advance limits, or policies with foreign insurers.

Partial buyback and full buyback

A full surrender terminates the contract. A partial surrender leaves the contract active, with a reduced capital. You then receive a portion of your premiums, plus a portion of the gains.

The official formula

The BOFiP (the tax administration's official guidelines) states that, for a partial redemption, premiums paid are only considered in proportion to the amounts reimbursed. The taxable income is therefore:

surrender amount − [premiums paid × (surrender amount ÷ total surrender value of the contract on the date of surrender)]

For the first withdrawal, the premiums paid are all of your premiums. For subsequent withdrawals, only those that have not already been repaid as capital are counted (see below). The bracket represents the capital portion. The remainder represents the gains portion. In other words, the gains portion of a withdrawal is equal to the withdrawal amount multiplied by (1 − premiums ÷ contract value). If the contract is worth €140,000 with €100,000 in premiums, 100/140 of each withdrawal is capital, and the remainder is taxable.

The successive buyouts

For a subsequent buyback, any repayments already made are taken into account. The total premiums considered exclude those already reimbursed by previous buybacks. The successive premium repayments ultimately reconstitute the total amount of premiums paid.

The example of the administration

The BOFiP gives the example of a single premium contract of €15,245, paid before September 27, 2017:

The three premiums reimbursed (5,081.67 + 2,771.60 + 7,391.73) do indeed amount to €15,245.

What the share of gains supports

The share of gains follows the same rules as a full redemption: the rate depends on the date the premiums were paid and the contract's age. This page applies to contracts taken out since January 1, 1990, for which the minimum age is eight years.

Three additional points should be noted:

• Social security contributions: 17.2 % in 2026. These taxes apply to gains, but only to those that haven't already been incurred: for euro-denominated contracts, the BOFiP (French Official Tax Bulletin) indicates that they are paid when the gains are credited to the contract. For premiums paid since September 27, 2017, and for contracts less than 8 years old, economie.gouv.fr indicates a total of 30,000,000, comprising 12.8% of income tax and 17.2% of social security contributions. The 2026 increase in the CSG (General Social Contribution) on investment products does not affect life insurance, which remains at 9.2% of the CSG.
• Annual allowance: €4,600 for a single person, €9,200 for a married or civil union couple taxed jointly. It applies to contracts of 8 years or more. It is a single annual charge, common to all your contracts, and it does not reduce social security contributions. It is deducted from the gains portion of all withdrawals made during the year.
• A down payment deduction. The insurer deducts either 12.8% or 7.5% of the gains from the policy's seniority and the premium dates, unless an exemption applies. This deduction is credited against the tax due for the year, and any overpayment is refunded.

For details of each seniority bracket, the allowance and the €150,000 threshold, see the dedicated pages.

Numerical example (fictitious profile)

Situation. Hélène, single, opened a contract in November 2017 with a single premium of €100,000. The contract will be over 8 years old in 2026. She has no other life insurance contracts, no other withdrawals this year, and she is neither requesting a waiver of social security contributions nor opting for the tax brackets. The contract is invested in unit-linked funds: the gains have not yet been subject to social security contributions (as a hypothetical scenario). Unit-linked funds carry a risk of capital loss. In 2026, she makes two partial withdrawals: €30,000 in March, when the contract is worth €140,000, and then €20,000 in October, when it is worth €115,000 (as a hypothetical scenario).

Issue. What portion of this €50,000 is capital, what portion is taxed, and how much remains after tax and social security contributions?

Strategy. Apply the formula to each redemption, deducting from the second the premiums already reimbursed by the first. Then deduct the €4,600 allowance from the total gains for the year.

Result.

• Allowance of €4,600: taxable base of €10,306.83.
• Tax at 7.5 %: €773.01. The insurer has deducted an advance of 7.5 % calculated redemption by redemption (€642.86 + €475.16 = €1,118.02), i.e. an overpayment of €345.01 to be refunded.
• Social security contributions at 17.2 % on €14,906.83: €2,563.97.
• Total tax and social security contributions: €3,336.98, i.e. €46,663.02 net on the €50,000 withdrawn.

The profile is fictitious. The contract values are hypothetical. The calculation assumes the €150,000 threshold is met, that there are no other taxable income subject to the allowance, and that the gains have not already been subject to social security contributions. It does not predict your individual circumstances.

Unit-linked contracts: the case of a "loss-making" contract«

On a unit-linked contract, the value may be less than the premiums paid: unit-linked contracts carry a risk of capital loss. The BOFiP (French Official Tax Bulletin) defines a contract as "at a loss" when its total value is less than the premiums not yet reimbursed. In this case, strictly applying the formula could lead to retaining a portion of the premiums exceeding the amount reimbursed.

To limit this effect, the administration allows a tolerance, stemming from a ministerial response of 2010 (no. 2010/46 of August 10, 2010): the portion of premiums reimbursed is capped at the amount of the partial redemption. This applies to redemptions made since May 31, 2010.

This page does not go beyond this tolerance. The processing of a loss-making contract outside of this framework will be verified on your file.

An advance is not a buyout, as long as it remains an advance.

An advance is a loan from the insurer, available only up to the surrender value of the policy. However, the tax authorities can demonstrate that, under the guise of an advance, you intended to permanently dispose of all or part of this value. They can then reclassify the advance as a surrender. The BOFiP (Official Bulletin of Public Finances) addresses cases where this provision aims to evade or reduce tax. The limits and conditions of an advance are not discussed here.

What changes depending on your situation

• The payment date of each bonus and the seniority of the contract: these determine the rate.
• The value of the contract on the exact date of redemption : the share of earnings varies with it.
• Your other buybacks and your other contracts : the allowance is a single one per year, and the threshold of €150,000 is assessed across all contracts.
• A unit-linked contract : the value may be less than your premiums.
• A special event Dismissal (with registration as a job seeker), early retirement, disability classified as category 2 or 3, or bankruptcy (with cessation of self-employment) are all eligible for this exemption. The BOFiP (French Official Tax Bulletin) provides for an income tax exemption upon termination of the contract, for the beneficiary or their spouse or civil partner, if the termination occurs before the end of the year following the event. A negotiated termination agreement or the end of a fixed-term contract does not grant this right. The application of this exemption to a partial redemption should be verified with the source.
• Premiums paid before and after 27/09/2017 on the same contract : this page does not deal with this case, it is checked on your file.
• Your tax residence : a non-resident is subject to other rules, which are discussed on a dedicated page.

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