When you invest in branch 21 life insurance, the state taxes you, as you might imagine. But how much tax do you pay exactly on a branch 21 policy? Thankfully, there is good news: you can receive a tax benefit via branch 21 in the framework of pension savings or long-term savings. Below is a review of taxation.
As regards taxes, there is a distinction between tax on the premium and tax on the accumulated capital.
Tax on premiums
You pay 2% tax on each premium for your branch 21 policy. You do not pay tax on pension savings insurance.
If your policy has existed for less than eight years or if you ask for your money before the eight-year expiry date, you must pay withholding tax. This amounts to 30% on a notional return of 4.75%, even if your actual return does not reach 4.75%.
If your policy has existed for more than eight years and if you do not use the money during this period, you do not pay withholding tax. You do not have to pay withholding tax, even if your policy provides for a death coverage of at least 130% of the invested amount.
Tax on long-term savings
On your 60th birthday, an 'advance payment' (also referred to as ‘tax on long-term savings') is applied to the savings of the contract. If you have taken out the policy after 1 January 2015, you pay 8% tax. Have you taken out a pension savings policy before 1 January 2015? If so, you therefore pay an advance payment of 1% over 5 years (2015-2019), unless you have already paid advance tax on your 60th birthday or on the 10th anniversary of the contract. When you turn 60, you owe an advance payment of 8%, but the taxes paid previously (5 x 1%) will be deducted from this final tax.
You do not pay tax on the bonus. For long-term savings, withholding tax is paid in this case, and no further tax is paid afterwards. After the advance payment, you can still receive a tax benefit.
Note that if you have taken out the policy after your 55th birthday, the advance payment is made on the 10th anniversary of your contract, and therefore not on your 60th birthday.
If you surrender your policy before you turn 60, you pay exit fees and 33% taxes (+ municipal tax). You are therefore advised not to do this. If you need money in an emergency, you can ask for an advance on your policy. This is more advantageous than a surrender.
If you die before your 60th birthday, the beneficiary pays 10% tax (+ municipal tax) on the capital paid (for payments after 1993).
No tax benefit, no taxation
If you have never declared your life insurance, and have therefore never received a tax benefit on the premiums, you do not pay the advance payment. Note that if you have received a tax benefit, even just once, you will have to pay the tax on long-term savings.
Thankfully, you do not only have to pay tax on a branch 21 policy: it also allows you to pay less tax. Thus, in 2019 (2020 taxation year), you can receive a tax benefit of maximum €2,350 multiplied by 30% in the framework of long-term savings. The maximum premium you can pay with a tax benefit depends on your taxable income.
If you opt for pension savings, there are two possible systems:
- You pay a maximum of €980, with a tax benefit of 30%.
- You pay a maximum of €1260, with a tax benefit of 25%.
A life insurance at NN offers you a lot of advantages: discover them here.