In legal terms, an assurance-vie is a contract between a subscriber, an insurance company and a beneficiary. The subscriber entrusts capital sums to an insurance company and chooses freely one or more beneficiaries, who will receive in the event of the subscriber’s death, the sums remaining on the contract. During his lifetime, the subscriber has full access to his assurance-vie policy, he may make payments called « premiums », select and manage investments through switches and redirections, make withdrawals, or even redeem the whole contract. This is the French preferred savings tool, particularly because of its taxation. Yet some aspects as the essential role of the beneficiary clause are often overlooked, and quite wrongly.
Table des matières :
The taxation applied during surrender events on an assurance-vie policy
More restrictive than a “CTO”, an assurance-vie contract is similar to a “PEA” by the tax benefits it provides to its subscriber, the capital outings enjoy a derogatory regime based on the age of the contract:
Date the contract is subscribed
|Before 4 years|
Between 4 and 8 years
After 8 years
|Before the 01/01/1983|
Tax Exemption, but social contributions (PS)
Between the 01/01/1983 and the 26/09/1997
Income Tax or PFL* of 35% + PS
Income Tax or PFL of 15.5% + PS
Capital gains realised before the 01/01/1998 are exempt from Income Tax. The social contributions are to be paid.
Those realised after the 01/01/1998 are subject to Income Tax or PFL of 7.5%, + PS.
Since the 26/09/1997
Income Tax or PFL of 35% + PS
Income Tax or PFL of 15.5% + PS
Income Tax or PFL of 7.5%, + PS
* PFL: Prélèvement Forfaitaire Libératoire: Flat rate withholding tax
The flat rate withholding tax is said flat because its rate does not depend on total income of the taxpayer.
The accumulation of the flat rate withholding tax and the social contributions are set on 1st January 2013 at 34.5% for dividends and 37.5% for fixed rates investments income.
Hence, for a contract opened in 2003, the capital outputs of the « assurance-vie » contract made in 2012 will either be taxed at a progressive rate of income tax or at a flat rate of 7.5%.
Social contributions (PS ) are so far allocated in relation to dates of realisation of capital gains. However, the government is working on a retroactive tax rate, which is currently effective: 15.5%.
Partial withdrawals are never causing the automatic closing of the contract, regardless of its age.
Benefit from the annual allowance on an « assurance-vie »
An annual allowance of €4,600 for a single person or €9,200 for couples will be made if the contract is over 8 years old. In other words, it is possible to withdraw annually €4,600 or € 9,200 worth of interests without incurring any tax, social security contributions remain payable though. The allowance is never accounted directly by the insurance company upon surrender, it will be applied by the tax authorities.
To qualify for the allowance on an assurance-vie when the surrender is subject to Income Tax, you must report the surrenders amount made in the year, in the CH line of the annual tax return. The allowance will be immediately applied by the administration.
If the surrender is subject to the flat rate withholding tax ( PFL ), the surrenders amount made in the year must be reported on the DH line. The taxpayer will then receive a tax credit for the following year. If the tax credit exceeds the tax due, he will receive a refund of the difference.
The « assurance-vie » as a vehicle for investment
Unlike the « CTO » (compte titre ordinaire) and the « PEA », an « assurance-vie » will only help to achieve an indirect investment in the financial markets.
Indirect, because the choice of the investor will only be on shares of collective investment schemes (UCITS), leaned against the markets, called « account units » or fund in « euro » with a capital guarantee.
In the case of mutual funds (SICAV, FCP) it will therefore be a case of selecting a manager and a theme: investment in shares, bonds, mixed, on commodities, on a geographical area etc…
Some contracts now propose to invest in real estate through REITs, or even on trackers, which are less loaded in fees than UCITS funds.
The importance of the beneficiary clause
This is the most misunderstood aspect of an assurance-vie policy, and the most used by wealth & asset managers/financial advisers. Specifically, when you purchase a contract you must designate to whom it will be transmitted if you were to die. The drafting of the beneficiary clause is free, and deserves all your attention.
Consider a standard clause « My children, living or represented, born or unborn, my successors. »
This clause states that if the policyholder dies, then this contract will revert either to the children or to the heirs. For a couple with young children, the consequences of such a clause can be dramatic.
Indeed, your spouse is not recognised as an heir and the contract transmission is made outside of the inheritance. Therefore, if unfortunately the subscriber was to die, it is the children who will receive the contract. The surviving spouse won’t be able to benefit from it. It will be at his/her cost to undertake the children education, without the money from the contract.
In addition, any act of important management realised on the contract on behalf of the children must receive the approval of a judge. This is a potentially delicate situation. To protect the surviving spouse, it is preferable that the beneficiary clause is worded this way: « My partner or my concubine, otherwise my heirs. »
However, the beneficiary clause can also be used to favor one person. It may be the grandchildren, or one in particular, a friend, or even a mistress… The possibilities are endless. The beneficiary clause bypasses to some extent the rules laid down by the Civil Code in matters of inheritance.
Finally, the transmission of capital held within an assurance-vie policy is done by its own taxation. Thus, after an allowance of €152,500 per beneficiary, the excess will be taxed at 20% up to €902,838 and 25% thereafter. If the beneficiary is the married partner or the civil partner, the transmission is tax-free. However, your children can cumulate the allowance from the inheritance law (€156,974 per child), with the specific allowance of the « assurance-vie » they would benefit. Potentially, it is therefore possible to transmit €309,474 to each child, tax-free.
The « assurance-vie » is an ideal tool to start as an investor. It is also the most popular tool used by wealth advisers to organise inheritance, because of its extremely advantageous and stable taxation, even today. The « assurance-vie » still has a bright future ahead of it.