The life annuity received by the annuitant is tax-advantaged. Although the annuity is subject toincometax , the full amount is not taken into account.
Article 158 of the General Tax Code states that life annuities constituted for valuable consideration are only considered as income up to a certain fraction, which is determined according to the age of the annuitant when the annuity comes into effect.
Only the following fractions are taken into account for income tax purposes:
- 70% if the beneficiary is under 50 years of age when the annuity is paid ;
- 50% if aged between 50 and 59 inclusive;
- 40% if aged between 60 and 69 inclusive;
- 30% if aged over 69.
This tax treatment is explained by the fact that part of the annuity paid corresponds to the repayment of the capital, which would not be subject to income tax. However, the remainder of the annuity must be treated as interest on the capital. The taxable portion of the life annuity is therefore the portion corresponding to the interest, which is determined on a flat-rate basis according to the above scale depending on the age of the annuitant.
It should be noted here that this scale is definitively fixed according to the first payment of the life annuity. Thus, a person who starts receiving the annuity at the age of 55 will be taxed on 50% of the annuity until his death, and not on the basis of his age at the time of his tax return.