Life insurance: purge your capital gains before the end of the year

Have you benefited from the sharp rise in the financial markets? It may be a good time to purge the capital gain from your life insurance contract for more than eight years. Procedure, by Gilles Belloir, managing director of the online broker Placement-direct.fr

When you make a withdrawal from a life insurance policy of more than eight years, you benefit from an annual allowance on earnings of €4,600 (€9,200 for a couple). By taking care not to exceed this reduction and by immediately replacing the funds withdrawn, you transform the gains from your policy, potentially taxed, into payments which will not be taxed during a future large withdrawal (for example for the purchase of properties).

This operation allows you to save up to €690 (or even €1,178) in taxes per year. This figure corresponds to the rate of the flat-rate levy (7.5%, or even 12.8%) which applies to a contract of more than eight years, multiplied by the amount of the allowance (€4,600, or €9,200 ) from which you can benefit.

Step 1: choose the contract to draw from

Even if it means draining the capital gains from your life insurance contracts, you might as well take the opportunity to reorganize your investments a little. It is in your interest to draw first on your less competitive contracts of more than eight years in order to better reinvest your savings.

These may be contracts whose funds in euros are the least profitable, which have a limited selection of investment vehicles and whose costs are high.

Step 2: Calculate the optimal withdrawal amount

Your life insurance contract is made up of payments but also of gains (if there is a capital gain). Any withdrawal will follow exactly this distribution. By retaining for example 75% of payments and 25% of gains on your contract, a withdrawal of 1,000 euros will then be composed of 750 euros of payments and 250 euros of gains.

To optimize the amount withdrawn from your contract, however, you must ensure that the gains included in the withdrawal do not exceed the allowance from which you benefit: 4,600 euros (9,200 euros for a couple). To calculate the maximum amount to be withdrawn, divide this allowance by the earnings share of your contract. In our example, this represents an amount of €18,400 (€4,600 / 25%), or €36,800 for a couple.

Step 3: put the money back on a contract with no entry fee

Regularly purging the capital gains from your life insurance contract for more than eight years is a good initiative to be less taxed. But be careful that this does not lead to additional costs for your savings!

To do this, favor a repayment on a life insurance contract that does not apply any fees on the payments. It would indeed be a pity if the tax savings achieved were annihilated by additional costs.