A recent circular from the tax authorities (Circular 2021/C/2 of January 7, 2021) aims at clarifying the provisions of Article 8 of the Inheritance Tax Code, in particular following the various legislative changes in matrimonial and inheritance law.
It results from the analysis of this circular that the preferential regime following which the holders of a life insurance policy benefited within the framework of a horizontal estate planning is now over.
I. TARGETED SITUATIONS
This circular mainly impacts situations where a married couple under the legal regime of community of property subscribed to a life insurance together, of which they are also the insured heads, and their common children the beneficiaries.
II. PREVIOUS REGIME
Previously, when spouses invested in life insurance, and in the event of the death of one of them, no inheritance tax was applied on the transfer of the cash surrender value of the policy from the deceased spouse to the surviving spouse.
Indeed, the Civil Code provides that the cash surrender value of the life insurance contract is considered the personal property of the surviving spouse. From a tax point of view, following this surrender, the surviving spouse is required to pay a reward to the estate assets. However, according to article 16 of the Inheritance Tax Code, this reward is exempt from inheritance tax.
III. REGIME ESTABLISHED BY THE NEW CIRCULAR
Through this circular, the tax authorities seek to clarify the scope of application of Article 8 of the Inheritance Tax Code. Indeed, the Administration stipulates that any sum received by the surviving spouse resulting from the conclusion of a life insurance policy under a stipulation made in his / her profit is considered as being collected as a legacy by this spouse, notwithstanding the that the surrender value is qualified by the Civil Code as belonging to the surviving spouse.
On this basis, the Administration therefore tends to consider that the surrender value is not transmitted via the prescription of the Civil Code but via a legacy within the meaning of Article 8 of the Code of Inheritance Rights. Inheritance tax would therefore be due on these amounts.
It should however be recalled that a circular does not bear the force of law and its purpose is in principle only to clarify the position of the Administration. The application of this circular could lead to numerous disputes between taxpayers and the Administration based on the violation of the principle of legality of tax.
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