“Inheritance rights: who wants life insurance skin?” – the platform of Daniel Haguet

French savers had a merry Christmas in December 2021. A work of reflection by the Economic Analysis Council suggests that “the differentiated treatment of life insurance under transfer duties has no strong economic justification” ( page 9), explicitly suggesting the abolition of this tax differentiation as part of a more comprehensive reform of inheritance tax.

It should be remembered that, in 2020, the total inheritance tax paid by French taxpayers amounted to 12.3 billion euros and that France is, according to the OECD, in the very selective private club of countries for which inheritance and gift taxes represent more than 1% of tax revenue. It therefore does not seem inconceivable that there is a safety valve thanks to a savings vehicle benefiting from less heavy inheritance tax.

According to the FSA, 45% of French households have at least one life insurance contract with an average duration of twelve years. A 2014 study tells us that the average age of subscribers was 53 for about 17 million subscribers. We are therefore in the presence of popular savings, stable and invested over the long term. As such, life insurance is a very interesting French financial exception.

Life insurance is a key player in the financial circuits of our private pension fund economy for well-known ideological reasons.

As of December 31, 2020, total assets were €1,789 billion, made up of 22% unit-linked (up 4% since December 31, 2019), the majority being invested in mutual funds. euros. This massive savings is a significant contribution to the financing of the French economy, both public debt (345 billion euros) and companies (1,603 billion euros) with an emphasis on SMEs/SMIs (97 billion euros). Life insurance is a key player in the financial circuits of our private pension fund economy for well-known ideological reasons.

The 2020 AMF/AUDIREP barometer tells us that the reason “dealing with any unforeseen expenses (excluding health expenses)” is of concern to 81% of the sample. The French are therefore asking for liquidity that only life insurance can provide, unlike the PER. They also have an opinion of 5.9/10 on life insurance contracts in euros, clearly confirming the success of this savings vehicle with our fellow citizens.

Rushed liquidations. More than half of life insurance policyholders declare financial assets of less than 45,000 euros. It seems obvious that the subscribers are not mostly “rich” and are not concerned by large estates. On the other hand, those who have lived through the painful experience of a succession know how much wealth can be devastated by hasty liquidations. Life insurance is an asset tool that is often useful for low-income families who do not immediately have the cash to finance rights without having, as sometimes, the obligation to resort to a loan.

It has long been said that life insurance was a “tax haven”, a qualifier all the more deserved as there is a “tax hell” elsewhere. This paradise was quickly transformed into purgatory by the grace of a divine reform of 1998 entitled “moralization of life insurance”

It has long been said that life insurance was a “tax haven”, a qualifier all the more deserved as there is a “tax hell” elsewhere. This paradise was quickly transformed into purgatory by the grace of a divine reform of 1998 entitled “moralization of life insurance” where the administration established a reduction of one million francs per designated beneficiary in the event of death of the insured (article 990 I of the CGI). The rest of the tax system, by stages of successive reforms, has been complicated at pleasure by the administration to become henceforth a complex machinery within which coexist variables such as the age of the insured, the date of opening of the contract and, even stronger, the date of the payments and the age of the insured at the time of these.

Depressions. The end result, in addition to making the once simple exposition of taxation completely incomprehensible to ordinary mortals, has caused a wave of nervous breakdowns among insurance company IT specialists. We leave the interested reader to consult the information available on the Internet, having previously made a sufficient supply of paracetamol to fight against the inevitable migraine.

It is interesting to note that the reduction, which, expressed in the single currency, is now at a level of 152 500 euros, has never been the subject of any revaluation and that the simple application of inflation rates annual INSEE from 1999 to 2020 would lead to a revalued allowance equal to 4.7 million euros. Such a precaution would protect citizens from the ravages of inflation, which economists tell us can make a comeback very soon. This question is eminently political but deserves to be asked by officials who really would be.

The polls tell us that insecurity will be a major theme in the context of the next presidential election. It is to be hoped that fiscal insecurity, so feared by our compatriots, will not be just a “feeling”.

Daniel Haguet, PhD, EDHEC Business School.

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