Rules on assurance vie payouts between friends in France

Reader question: Is inheritance tax payable on assurance vie (AV, life assurance) payouts between friends?

As a general rule, no, and putting a friend down as an AV beneficiary can be one way to avoid France’s high level (60%) of inheritance tax between unrelated people if you simply leave money to them in a will.

However, taxation of such payouts depends on whether payments into the AV were made before or after age 70.

Generally speaking, amounts paid out benefit from a €152,500 allowance per beneficiary, then 20% tax after that (31.25% over €700,000).

If sums were invested after 70, an amount equal to these sums will instead be subject to inheritance tax after a €30,500 allowance applying once to all such policies.

Note that it is theoretically possible that if payments into such an AV are seen as excessive with regard to France’s reserved heirship rules, the policyholder’s children could make a legal challenge to have it set aside.

Also, case law suggests that to keep AV payouts outside the estate for inheritance, those opting to leave money in this way should avoid mentioning this in a will, or if they do, they should not use language implying they are ‘bequeathing’ the money.

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