Encashing IoM Insurance bond

[pomme]

I am French tax resident. I have had an IoM Insurance bond since 2003. The bond has an element of life insurance.

I am now thinking of cashing in the bond to help with a deposit for house purchase for one of my children. The interest will be about 40,000€.

Can someone help me with which lines on the French tax form I would need to use to declare this interest so I can use one of the online calculators to estimate the likely tax/social charges?

I believe there may be a special treatment for IoM (and Jersey?) life insurance?

[parsnips]

[quote user="pomme"]I am French tax resident. I have had an IoM Insurance bond since 2003. The bond has an element of life insurance.

I am now thinking of cashing in the bond to help with a deposit for house purchase for one of my children. The interest will be about 40,000€.

Can someone help me with which lines on the French tax form I would need to use to declare this interest so I can use one of the online calculators to estimate the likely tax/social charges?

I believe there may be a special treatment for IoM (and Jersey?) life insurance?[/quote]

Hi,

      The bond should be declared in the same way as a french life assurance cash- in.  Form 2042 page 3 sec 2  box 2CH.   After a tax free allowance of 4600€ (single) or 9200(married) the gain will be taxed at your marginal rate , or you can opt for taxation at 7.5%.  You would need to put a note on the declaration , and possibly provide documentation .

        The whole of the gain is subject to CSG at 15.5%.

         If the potential tax bill is high you could possibly put an entry at page 2 sec 4 box 0XX for a treatment which spreads and reduces the bill for "exceptional "revenues.  In this case put nothing anywhere else on the form and a brief note in the "revenus exceptionnels " section.  Expect to have to discuss with tax office.

[minnie]

Will there be further complications with regard to the division of the estate when pomme dies i.e. that he has preferred one of his children? To counter this should he declare to the authorities what he has done?

[parsnips]

[quote user="minnie"]Will there be further complications with regard to the division of the estate when pomme dies i.e. that he has preferred one of his children? To counter this should he declare to the authorities what he has done?[/quote]

Hi,

      The cash-in should  be declared

   What he does with the cash is up to him  .   Cash gifts (dons manuels) are required to be declared in only two situations ;   1. where the recipient is asked by the french tax office where they got a large sum in their french bank account.

              and 2. at the succession of the donor , when the recipient  is supposed to reveal it to the notaire.

 If, as I suppose, pomme' s children are in the UK , it will be seen that 1. will not apply, and unless any siblings make an issue of it at his succession, neither will 2. if the recipient keeps mum.

             

                 In french families these things are usually brought to the attention of the tax office /notaire  by disgruntled siblings.

[pomme]

Thank you for your advice.

I assume that means there is no special treatment for IoM life insurance (as IoM isn't in the EU) and they are treated in the same way as French assurance vie?

Regarding the likely tax, how does the 7.5% rate work? As I am married, would that effectively be 7.5% of half the 40,000€ or 7.5% of the whole 40,000€ (less the 9200€ reduction)?

The money would only be a loan to one of the children, not a gift.

[parsnips]

[quote user="pomme"]Thank you for your advice.

I assume that means there is no special treatment for IoM life insurance (as IoM isn't in the EU) and they are treated in the same way as French assurance vie?

Regarding the likely tax, how does the 7.5% rate work? As I am married, would that effectively be 7.5% of half the 40,000€ or 7.5% of the whole 40,000€ (less the 9200€ reduction)?

The money would only be a loan to one of the children, not a gift.[/quote]

Hi,

     As far as I am aware such contracts are treated the same as any other EU or EEC life assurance .    The determining factor is the mention of some element of life cover in the contract (typically 1%). 

     The proceeds will form part of the income of your "foyer fiscal" ie the couple , as with all other income of french residents.   Tax is only due on the gains or interest , and most of the withdrawal will consist of non taxable capital -ie your original deposit.  The 9200€ reduction will be applied to the gain , and the residue is the taxable amount ( CSG will apply to the whole of the gain , but again,not to the capital element ). 

     As it will be a loan (presumably interest - free),  if you wish to avoid any succession issue , you should draw up a simple loan agreement -preferably including your wife as co-lender, showing the amount and an ultimate repayment date, (which could be at the succession of the surviving spouse).  

[pomme]

I finally went in to the local tax office today to clarify the tax situation having forewarned I wanted to discuss taxation on an IoM life insurance bond.

As the Isle of Man (and Jersey and Guernsey) aren't part of the EU they do not come under the tax convention. Therefore the standard rules for allowances, etc for assurance vie do not apply.

Any gain is treated as an ordinary gain with an entry on form 2047 in line TR and on form 2042 in line 2TR. So the gain is taxed at the standard scale rates together with CSG at 15.5%.

[Un autre Gallois]

Hi - Was the investment recommended by a financial advisor? Siddalls recommended such a product  for myself with Clerical Medical IoM (worse luck as the subsequently imposed dreaded MVA locked me in for twelve years to be penalty free) and assured me it was French fiscally compliant - ie any "gain" would be reduced by the same amount as a policy written in France, although another advisor has cast doubt on this! This year's declaration will be the testing time! Although, perhaps if I don't think I will like the answer to a question it may be better not to ask it!

UaG

[parsnips]

[quote user="pomme"]I finally went in to the local tax office today to clarify the tax situation having forewarned I wanted to discuss taxation on an IoM life insurance bond.

As the Isle of Man (and Jersey and Guernsey) aren't part of the EU they do not come under the tax convention. Therefore the standard rules for allowances, etc for assurance vie do not apply.

Any gain is treated as an ordinary gain with an entry on form 2047 in line TR and on form 2042 in line 2TR. So the gain is taxed at the standard scale rates together with CSG at 15.5%.[/quote]

Hi,

    This seems to suggest that if taken out before becoming french resident, plans which satisfy EU regs for life assurance are treated as such in France .  www.ailo.org/help/france.pdf

     Don't ever fall into the trap of thinking that because the local tax office says something , they will be right.   If it's outside the everyday , they will be often guessing.

     The best thing is to declare the figures on your  2042 (as an assurance vie ) and don't go into any more detail.

[pomme]

The bond was recommended in different proposals I had from Siddalls and Blevins in 2002.

More recently, when I was discussing a different matter with another English-speaking France-based IFA the problem of IoM life insurance not qualifying for favourable tax in France was mentioned. Internet searches seemed to indicate the same.

When I originally telephoned to make an appointment about how the assurance vie profit should be declared he misunderstood Ile de Man as Allemagne. It took some explaining as he'd obviously not heard of it and didn't know where it was. So he'd done research by the time of the office visit.

I spent more time yesterday on internet research and looking through BROCHURE PRATIQUE 2013 - DÉCLARATION DES REVENUS 2012 http://www2.impots.gouv.fr/documentation/2013/brochure_ir/index.html .There seem to be several references to IoM, Jersey, Guernsey, etc being excluded as they are not in the EU.

I'm not sure just declaring a 40K life insurance gain without backing explanation would get through any examination and would only result, in the end, for the need to pay the correct taxes, etc.

[parsnips]

[quote user="pomme"]The bond was recommended in different proposals I had from Siddalls and Blevins in 2002.

More recently, when I was discussing a different matter with another English-speaking France-based IFA the problem of IoM life insurance not qualifying for favourable tax in France was mentioned. Internet searches seemed to indicate the same.

When I originally telephoned to make an appointment about how the assurance vie profit should be declared he misunderstood Ile de Man as Allemagne. It took some explaining as he'd obviously not heard of it and didn't know where it was. So he'd done research by the time of the office visit.

I spent more time yesterday on internet research and looking through BROCHURE PRATIQUE 2013 - DÉCLARATION DES REVENUS 2012 http://www2.impots.gouv.fr/documentation/2013/brochure_ir/index.html .There seem to be several references to IoM, Jersey, Guernsey, etc being excluded as they are not in the EU.

I'm not sure just declaring a 40K life insurance gain without backing explanation would get through any examination and would only result, in the end, for the need to pay the correct taxes, etc.[/quote]

Hi,

   Why not take this up with Siddalls who recommended it?