Redemption of a capitalisation contract: taxable proceeds, rates and allowances

When you redeem a capital redemption contract, only the proceeds are subject to income tax: the portion of the gain included in the withdrawn sum, calculated proportionally to the premiums paid in the case of a partial redemption. For proceeds linked to premiums paid on or after September 27, 2017, the rate is 12.8% (%) by default. It is 7.5% (%) for a contract of 8 years or more, taken out with an insurer that meets the BOFiP (French Official Tax Bulletin) requirements, up to a limit of €150,000 in premiums paid. An annual allowance of €4,600 (€9,200 for a couple filing jointly) applies to the proceeds of contracts of 8 years or more.

This page is intentionally limited to the taxation of redemptions, based on official documents we have reviewed. It does not address the legal definition of a capitalization contract, its transfer (including acquisition free of charge and split of ownership), its ownership by a company, or its ownership by a non-resident. It also does not detail social security contributions: their rates and terms should be verified before making a decision.

What the BOFiP says

The BOFiP (French Official Tax Bulletin) addresses the proceeds from capitalization bonds or contracts and assurance-vie policies, whether taken out in France or abroad, in a single commentary (BOI-RPPM-RCM-20-10-20-50). The rates of 12.8% and 7.5% are covered by a separate commentary (BOI-RPPM-RCM-20-15), which relates them to premiums paid from September 27, 2017 onwards.

The PEA assurance is a unit-linked capitalisation contract, according to service-public.gouv.fr.

The taxable proceeds from a partial redemption

In the event of a partial redemption, premiums paid are only retained in proportion to the amounts reimbursed. The taxable proceeds are:

product = redemption − premiums paid to the date of redemption × (redemption ÷ total redemption value to the date of redemption)

The ratio between the surrender value and the total surrender value indicates the proportion of the contract you are withdrawing. This ratio is applied to the premiums to isolate the capital portion; the remainder of the surrender value is the proceeds.

The rates: under 8 years, 8 years and over

This table applies to products linked to premiums paid from September 27, 2017. Four points to note:

• Bonuses paid before September 27, 2017 fall under a different scheme. The BOFiP (Official Bulletin of Public Finances) stipulates that, in principle, these individuals are subject to taxation according to the progressive tax scale, unless they opt for the flat-rate withholding tax. This page does not provide details on this system.
• The duration is a period of detention. The BOFiP considers 8 years for contracts taken out from January 1, 1990, and 6 years for those taken out between January 1, 1983 and December 31, 1989.
• The place of establishment of the insurer is a condition of 7.5 %. The contract must be taken out with an insurance company established in France, or, in the cases provided for by the BOFiP (Official Bulletin of Public Finances), in another Member State of the European Union or the European Economic Area (BOI-RPPM-RCM-20-15, paragraph 130). If these conditions are not met, the BOFiP applies the standard rate of 12.8%.
• The €150,000 threshold is personal. It is calculated per beneficiary, not per couple. It takes into account the premiums paid on all your contracts, regardless of the insurer's location, excluding those already redeemed as a lump sum. Above the threshold, the BOFiP (French Official Tax Bulletin) provides for a proportional calculation: the rate of 7.5% (%) then applies only to a portion of the proceeds, with the remainder remaining at 12.8% (%). This calculation, which takes into account premiums paid before September 27, 2017, is not detailed here.

The BOFiP also provides for an option for the progressive tax scale instead of the flat rate. This page does not detail the conditions for this option.

The annual allowance

An annual allowance applies to the proceeds of contracts of 8 years or more:

This allowance is annual and cannot be carried forward. It is reserved for taxpayers who are tax residents of France. The BOFiP (Official Bulletin of Public Finances) specifies that this allowance is not taken into account when calculating social security contributions.

In the event of the death of one of the spouses or civil partners, the allowance is €9,200 until the death, then €4,600 for the survivor.

Social security contributions: a point to check

This page does not provide information on the social security contribution rates and terms of contributions on the proceeds of a capitalization contract. These details should be verified with the relevant authorities or the insurer before any redemption.

Two special situations

A contract signed before January 1, 1983

The BOFiP indicates a specific regime: the products attached to premiums paid since October 10, 2019 on these contracts are subject to income tax, the triggering event having occurred from January 1, 2020. The condition of converting at least 10 % of the commitments into euros is removed.

A contract taken out outside France by a resident

A French resident who holds a contract taken out outside France must complete form 3916 or 3916 bis. This form specifically addresses capitalisation contracts and includes a section for contracts taken out outside France.

Capitalization contract and IFI

The BOFiP (French Official Tax Bulletin) includes in the tax base for the real estate wealth tax the surrender value of redeemable assurance-vie policies and unit-linked bonds or capitalization contracts, up to the fraction representing units of account comprised of taxable assets. The instructions for the 2042-IFI 2026 tax return classify this indirect ownership (via the unit of account of a redeemable assurance-vie policy or a capitalization contract) under line CA of the "Assets Held Indirectly" section of its calculation aid sheet.

Numerical example (fictitious profile)

Situation. A business owner holds a capital redemption contract with a surrender value of €200,000. He has paid €120,000 in premiums into the contract, all starting from September 27, 2017, with an insurer established in France. He is redeeming €50,000. He has no other contracts: his premiums remain below the €150,000 threshold.

Issue. What portion of the redemption is taxable, and at what rate? The answer depends on the age of the contract.

Strategy. The firm verifies with him the subscription date, the payment dates, the place of establishment of the insurer and the premiums of all his contracts, before any redemption request.

Result. The product is calculated as follows: €50,000 − €120,000 × (€50,000 ÷ €200,000) = €50,000 − €30,000 = €20,000. Of the €50,000 withdrawn, €20,000 is taxable, i.e. 40 %.

The difference is €1,060 in this example. This profile is fictitious. The calculation assumes premiums paid from September 27, 2017, an insurer established in France, a contract of 8 years or more taken out from January 1, 1990 (right-hand column), and a rate of 7.5% on the entire product. It does not apply the annual allowance of €4,600 or €9,200, and does not calculate social security contributions. The figures illustrate the mechanism, without guaranteeing a result for your specific situation.

What changes depending on your situation

• The date you signed your contract.
• The date of payment of your bonuses, before or on or after September 27, 2017.
• The total amount of your premiums paid, across all contracts, compared to the threshold of €150,000.
• The insurer's place of establishment.
• Your situation: single, or couple subject to joint taxation.
• Your tax residence.

The rule depends on your situation; no results are promised.