A Major Overhaul of the Tax Treatment of Insurance-Based PERs

The tax authorities recently made a significant update to their Official Bulletin of Public Finances (Bofip), introducing a clear distinction in the calculation of inheritance tax for insurance-based Retirement Savings Plans (PERs). 

This distinction depends on whether the PER was redeemable at the time of death or whether it was still in the savings phase—and therefore not redeemable.
 

According to a report published in mid-June by the University Association for Research and Teaching on Cultural Heritage (Aurep), this trend stems from a strict interpretation of the law by tax administration officials. This interpretation leads to a significant reduction in the tax base when death occurs before the legal retirement age.
 

The Three Tax Regimes for the PER Depending on the Time of Death
 

Death Before the Legal Retirement Age
The PER is a retirement plan designed to be accessed after retirement. During the savings phase, before reaching the legal retirement age, this type of investment is considered non-redeemable. However, there are seven exceptions that allow for early withdrawal of savings, including in the event of a life-altering event, the purchase of a primary residence, or for former “PER Jeunes” accounts. The occurrence of any one of these events is sufficient to reclassify the plan, making it redeemable.
 

The tax base for death benefits under a retirement plan varies depending on whether the plan is redeemable or not. If the insured person dies before reaching retirement age, only the annual premiums or the lump-sum premium paid upon the plan’s inception are taken into account. During the savings phase, death benefits from an insurance-based PER (retirement savings plan) qualify for preferential tax treatment. Taxation is limited to the premiums paid during the last year preceding death, with a 20% tax rate on amounts up to 852,500 euros, and a 31.25% rate on amounts above that threshold, after applying an individual exemption of 152,500 euros per beneficiary.
 

Death between the statutory retirement age and age 70
If the insured dies after reaching the statutory retirement age, the policy is considered redeemable. The proceeds paid to the heirs are then subject to Article 990I of the General Tax Code (CGI), which applies to all premiums and interest accrued throughout the term of the policy.
 

Death After Age 70
After age 70, the insured person falls under the scope of Article 757 B of the General Tax Code (CGI), which was previously reserved for inheritance taxes on life insurance policies. In such cases, a flat deduction of 30,500 euros applies, followed by gift tax based on the family relationship between the insured and their beneficiaries. Unlike life insurance, the amounts included in the taxable base do not depend on the date of the premium payments, but rather on the policyholder’s age at death. In most cases, this results in a broader taxable base, which is less favorable than under life insurance.
 

It is important to note that PERs and life insurance policies do not serve the same purpose when it comes to passing on assets. Savers must therefore take this difference into account if they wish to pass on their assets in a tax-efficient manner.