The capitalisation contract: taxation, usufruct and transmission

A capitalisation contract is a financial savings product governed by the French Insurance Code, in which a subscriber pays premiums that are capitalised in euro funds or unit-linked vehicles. It operates as a tax wrapper: the gains are taxed only upon surrender, under Article 125-0 A of the French Tax Code. Unlike life insurance, it does not rest on a contingency linked to human life and carries no designated beneficiary: it is not unwound by the subscriber's death and passes on like an ordinary asset.

During the holder's lifetime, both wrappers follow the same tax regime for surrenders (Article 125-0 A of the French Tax Code). The difference is decisive at death. Life insurance is unwound in favour of a designated beneficiary, outside the estate, with its own preferential regime (Article 990 I of the French Tax Code for premiums paid before age 70). The capitalisation contract has no beneficiary: it forms part of the taxable estate at its surrender value and passes on under the ordinary rules. In return, it retains its tax seniority and can be gifted during the holder's lifetime, dismembered and included in a gift-partition.

No. The capitalisation contract enjoys no preferential regime of the Article 990 I type under the French Tax Code. On the subscriber's death, it forms part of the taxable estate at its surrender value and is subject to gratuitous transfer duties according to the family relationship, after application of the ordinary allowances. Its wealth-planning appeal lies elsewhere: it passes on without being surrendered and retains its tax seniority, so that the heir or donee receives a contract that is already mature for tax purposes.

Only the gains included in the surrender are taxed, never the invested capital (Article 125-0 A of the French Tax Code). These gains are subject, at the taxpayer's choice, to the flat-rate levy of 12.8% (30% including social security contributions of 17.2%) or, on election, to the progressive income tax scale. After eight years of holding, an annual allowance of EUR 4,600 for a single person or EUR 9,200 for a couple applies, with a reduced rate on gains attached to premiums paid before 27 September 2017.

Yes, and this is one of the major differences from life insurance, which is reserved for individuals. A legal entity, whether a company subject to corporate income tax, a family holding company or an SCI, may subscribe a capitalisation contract to deploy stable treasury over a long horizon, subject to consistency with its corporate purpose. The tax regime is specific: for a legal entity subject to corporate income tax, the gains are subject to an annual flat-rate taxation computed on a notional base, adjusted upon surrender.

Yes. Unlike life insurance, the capitalisation contract may be subject to a dismemberment of ownership: a usufructuary and a bare owner share the rights over the contract. The usufruct confers the right to enjoy the contract subject to preserving its substance (Article 578 of the French Civil Code). A dismemberment agreement allocates the prerogatives, surrenders, arbitrages, information, between the parties. The respective values of the usufruct and the bare ownership are determined under the scale of Article 669 of the French Tax Code, which reduces the taxable base in the event of a gift with a reserved usufruct.

The capitalisation contract can be gifted during the holder's lifetime, in full ownership or in bare ownership with a reserved usufruct, and included in a gift-partition allocating the assets among the presumptive heirs (Articles 1075 et seq. of the French Civil Code). The benefit is twofold: assets transferred by gift-partition are, in principle, valued as at the date of the gift and not at death, which freezes the value of the shares and prevents disputes; and the donee receives the contract with its tax seniority. The gift also opens entitlement to the EUR 100,000 allowance per parent and per child, renewable every fifteen years.