On Wednesday, 27 September, the draft finance bill for 2018 was presented to the Council of Ministers. The following day, the draft social security financing bill for 2018 was also presented.
The following article contains a short overview of main tax measures, reflecting Emmanuel Macron's commitments during the presidential campaign.
The “flat tax” applied to life insurance
In order to simplify the taxation of savings income, the draft law details the provisions on the prélèvement forfaitaire unique (PFU) or “flat tax”. Starting in the beginning of 2018, the objective of the “flat tax” will be to standardize the taxation of income from financial investments by replacing all the existing schemes with a tax at the single rate of 30%, including social charges of 17.2%.
With respect to life insurance, the bill indicates that the 30% tax would apply to gains realized on redemption on a life insurance policy corresponding to premiums paid since September 27, 2017, premiums paid before that date remaining taxed according to the former rules.
In order not to penalize clients with smaller policies, when premiums paid do not exceed € 150,000 per person as of December 31 of the year preceding the redemption, the redemptions made on contracts held for more than 8 years would be subject to a levy at the rate of 7.5% (+ social charges). The allowances of € 4,600 / € 9,200 would remain available in this case. In addition, if the amount of premiums paid exceeds the above threshold, the 7.5% rate would apply in proportion to premiums below € 150,000, with the "normal" rate of 12.8% applicable on the surplus.
The taxation of life insurance in case of death has not been changed.
The creation of the real estate wealth tax
From January 1, 2018, the wealth tax (ISF: Impôt de Solidarité sur la Fortune) will be replaced by the real estate wealth tax (IFI: Impôt sur la Fortune Immobilière). The basis of this new tax would be the total value of real estate assets held by the household, directly or indirectly, with the exception of property used for a professional activity. Life insurance contracts and other financial investments would therefore be excluded from the tax base. The thresholds and brackets applicable for the new tax will be similar to the ones previously used for the wealth tax (ISF).
It should be noted that real estate collective investments, such as SCPI and OPCI, would fall within the scope of the new tax, even if held through a life insurance contract.
Increase in social contributions
The draft social security financing bill for 2018 foresees an increase in the CSG (one of the components of social charges) of 1.7%, bringing the total amount of social contributions applicable to investment income to 17.2%.
This will have an impact, for example, on the taxation of rental income, on withdrawals on life insurance contracts or on the yearly income from guaranteed funds (fonds en euros) within life insurance policies.
Written by Denis Kouznetsov