ADVERTORIAL: RFP Director Yves Derrien talks life insurance
Understanding life insurance
The French tax reform of July introduced new changes for one of the most useful investments for non-residents: life insurance policies. These policies are specific French investment vehicles used for both savings and transmission.
As long as the funds remain invested within the policy, capital gains are not subject to capital gains tax. If some money is withdrawn, only the capital gain of the amount taken out (not the principal) is taxed.
The capital can be invested in all kinds of mutual funds, and even in selected listed and unlisted equities under conditions.In the event of death of the policy holder, the capital is transmitted to one or more beneficiaries and is not included in the heirship. Since July, for each policy holder and beneficiary, the new taxation is: 0-152,500 euros, no tax; 152,500- 902.838 euros, 20% tax; above 902,838 euros, 25% tax. However, all funds above 30,500 euros invested after the age of 70 are subject to regular inheritance tax.
For years, the subscription of a life insurance policy by a non-resident before the age of 70 avoided the withholding of tax on the transmitted capital, making it possible to transmit capital tax-free. However, the reform has modified this accommodative tax. Currently, if the life insurance policy has been subscribed by a non-resident under the age of 70, sums transmitted are subject to withholding tax only in the following cases: either the beneficiary is a tax resident in France at the day of death of the policy holder and if he has been a resident in France at least 6 years of the previous 10 years, or the policy holder is a tax resident in France on the day of his death. Despite the changes, life insurance policies remain very useful investments to prepare one's retirement or transmission with a relatively low taxation when compared to the regular inheritance tax, especially if someone wants to transmit capital to relatives or any other person.
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