Life insurance after age 70: beware, the reduction of €30,500 is common to all!

Unlike the reduction of €152,500 offered to each beneficiary for contracts funded before age 70, that of €30,500 which applies to policies funded after age 70 is global. Explanations…

In the event of death, the taxation of non-exempt life insurance contracts follows two main rules. Contracts funded before the insured’s 70th birthday offer a deduction of 152,500 euros and are then taxed at 20% then 31.25% from 700,000 € after deduction (article 990I of the CGI). Since the reduction of €152,500 is allocated to each beneficiary, the calculations here are quite simple to perform.

Concerning contracts on which the payments took place after 70 years, the framework is a little more complex. Here, only payments are taxed (winnings are exempt). But these payments are subject to the scale of inheritance tax after a reduction of only €30,500. In addition, this reduction is common to all (article 757B of the CGI).

So what happens when there are several beneficiaries to the contract? How is the reduction distributed? In a BOFiP publication dating from 2020 (BOI-ENR-DMTG-10-10-20-20), the administration gives an answer. §210 indeed explains that the allowance is allocated between the beneficiaries ” in proportion to their share of the taxable premiums “.

Example

An insured person aged over 70 paid €90,000 into policy A awarded to his son Jean, then €60,000 into another policy (B) awarded equally to his son Jean and his daughter Madeleine. On the death of the insured, contract A is worth €100,000 and contract B €70,000. John therefore receives €135,000 and Madeleine €35,000.

Regarding taxation, only the premiums will be retained, i.e. €90,000 for contract A and €60,000 for contract B. Of these €150,000 of taxable premiums, €120,000 are allocated to Jean (80% of the total) and €30,000 to Madeleine (20%). Jean will therefore obtain a reduction of €24,400 (80% of €30,500) and will be taxed on a basis of €95,600. Madeleine will have a reduction of €6,100 and a tax base of €23,900.

Caution in the presence of an exempt person

Another difficulty relates to the calculations in the presence of an exempt person, in particular a spouse. Here again the administration provides an answer, in §220 of the document.

In such a case, the share of exempt persons should not be taken into account in the distribution of the allowance. In other words, if a contract is awarded in equal shares to a spouse and a child, the latter will be able to use the entire €30,500 allowance for their benefit.

And with a dismemberment?

Finally, it remains to see the case of a dismemberment of the beneficiary clause. Here (§225), the administration specifies that the allowance should be distributed between usufructuary and bare owner according to the scale of article 669 of the CGI. If the usufructuary is for example 65 years old at the end of the contract, he will obtain 40% of the reduction (€12,200) on the rights received and the bare owner will obtain 60% (€18,300).

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