Is it possible to give €150,000 every 10 years tax-free?

Many people wonder whether it’s possible to make a donation of €150,000 every 10 years without paying taxes. This is by no means a trivial question in a country like France, where the tax burden is among the highest.

Is this widely held belief really true? What is the best tax strategy for optimizing the transfer of your estate and protecting your loved ones? Tax-free gifts, tax deductions associated with life insurance, combining tax benefits… there’s no shortage of ways to avoid paying taxes!

Life Insurance and a €150,000 Gift Every 10 Years: Myth or Reality?

According to some, it is supposedly possible to make a donation of €150,000 every 10 years without paying any tax. Unfortunately, this common belief is false. 

Under current law, two options are worth mentioning: 

• A parent may make a tax-free gift of €100,000 to their child every 15 years (not €150,000 every 10 years).
• Upon death, a life insurance policyholder may pass on €152,500, after taxes, to each designated beneficiary. 

A €150,000 donation every 10 years: Why is this mistake so common?

Although surprising at first glance, the rumor of a “tax-free donation of €150,000 every 10 years” can be explained by several factors: 

• Confusion with life insurance and its €152,500 tax exemption
• A promise not kept by Emmanuel Macron, who had planned to raise the tax exemption to €150,000 for gifts from a parent to a child (excluding life insurance)
• A reference to outdated rules: Before 2012, the tax exemption applicable to a gift from a parent to a child was €156,974. 

Life Insurance: Is It a More Tax-Advantageous Option Than Gifts? 

Popular among the French, life insurance is a savings product that allows people to pass on their assets at a lower cost. Why? When the policyholder dies, the money saved is transferred outside the estate. This makes it possible to partially avoid the particularly high inheritance taxes in France. 

Premiums Before Age 70: A Very Favorable Tax Framework 

An individual who takes out a life insurance policy (the policyholder) may make payments (premiums) throughout the term of the policy. If these premiums were paid before the policyholder’s 70th birthday, each beneficiary is entitled to a tax exemption of €152,500. 

In other words, upon death, the policyholder of a life insurance policy can pass on up to €152,500 to each beneficiary without the beneficiaries having to pay any tax. Thus, a couple with two life insurance policies can pass on up to €305,000 to their children tax-free.

For amounts exceeding €152,500, the principal is taxed as follows: 

• 20% for amounts between €152,500 and €700,000 
• 31.25% on capital exceeding €700,000 

Please note that this tax applies only to premiums paid by the policyholder, and not to gains or capital gains realized. 

Benefits after age 70: a significantly less favorable system 

If premiums are paid after the policyholder’s 70th birthday, the tax treatment upon death becomes less favorable: the tax exemption is then reduced to €30,500, which is nearly five times less than that for payments made before age 70.

In addition, this €30,500 deduction applies to all beneficiaries, unlike payments made before age 70, where the deduction applies to each beneficiary individually.

When the contract value exceeds €30,500, the premiums are included in the estate. As a result, upon the insured’s death, any amounts exceeding this threshold are subject to standard estate taxes (ranging from 5 to 45 percent, depending on the circumstances). 

An example to help you better understand the €30,500 deduction

Martine, who passed away a month ago, had saved €50,000 in her life insurance policy, including €5,000 in investment gains. The entire principal was invested after she turned 70. Since the tax exemption is a joint allowance, her three children will be taxed as follows: 

• 50,000 (life insurance value) - 5,000 (after-tax gains) = 45,000 
• 45,000 (value of the life insurance policy excluding gains) - 30,500 € (exemption) = 14,500 €, or just over 4,800 € per child (taxable base). 

Life Insurance Policies Taken Out Before 1991: An Exceptional Tax Benefit 

Life insurance policies taken out before November 20, 1991, are true tax treasures. In fact, all premiums paid before October 13, 1998, are tax-exempt. Here, there is no longer any question of tax deductions, the policyholder’s age, or the taxable base: the exemption is total. 

Since this type of exemption is unlikely to occur again, terminating such a contract must be carefully considered, as it could jeopardize the transfer of one’s estate. 

Life Insurance vs. Traditional Estate Planning: The Tax Gap

In the absence of life insurance, the estate passed on upon death is subject to higher taxes. While tax exemptions are also available, their amount depends on the relationship to the deceased:

• A deduction of €100,000 for a child or a parent 
• €15,932 for a brother or sister 
• €7,694 for a nephew or niece 

In any case, the €152,500 exemption for life insurance remains more advantageous than those provided for under general inheritance law (except for the spouse, who is fully exempt in both situations). 

Life Insurance and Social Security Contributions: Is There No Way to Avoid Them? 

When an estate is settled, some life insurance beneficiaries are bitterly surprised to find that the payout is less than the amount shown on the decedent’s most recent annual statement.

This is not an error, but rather the application of social security contributions, set at 17.2 percent. This tax applies only to capital gains and interest generated by the life insurance policy, unless the policyholder has already paid it during his or her lifetime.

Life Insurance and Excessive Premiums: The Danger of a Disguised Gift

In principle, the funds accumulated in a life insurance policy are not part of the estate.  

To prevent abuse, Article L132-13 of the Insurance Code allows a judge to reinstate premiums deemed manifestly excessive into the estate or even to reclassify the contract as a disguised gift.

As a result, instead of taking advantage of the tax benefits associated with life insurance, beneficiaries are taxed according to standard estate tax rules, which increases their tax liability.

To assess whether the bonuses paid were excessive, two main criteria come into play: 

• The policyholder's age at the time of payment: the older the policyholder is, the more cautious the judge becomes. 
• Overall financial situation: A payment representing 70 to 100 percent of the subscriber’s net worth may be considered excessive.