BORROWER INSURANCE: INCREASED TAXATION ON LOAN CONTRACT INSURANCE

The 2019 finance bill, in its article 52, provides for the elimination of the tax exemption on insurance agreements on the death guarantee of borrower insurance contracts.

The tax on insurance agreements (or TCAS)

This tax is a proportional tax that must be paid on certain insurance contracts, the rate of which varies according to the nature of the risk insured. It is governed by the provisions of articles 991 to 1004 bis of the French General Tax Code (CGI) and is used to finance various solidarity funds.

It covers insurance contracts proper where the risk is located in France, preparatory acts for these contracts, amendments to these contracts, and acts of an amicable termination of the contract.

However, some acts are not considered insurance contracts.

This is the case, for example, with credit insurance acts (a type of insurance that guarantees companies or banks against borrower defaults).

Thus, the borrower insurance guarantee for loan contracts has so far benefited from a partial exemption from the tax for certain life risks (death).

Abolition of the tax exemption for the death guarantee

The Ministry of Finance has reconsidered the taxation of loan insurance which must be increased as of 2019.

Article 52 of the 2019 finance bill provides to abolish the tax exemption on insurance agreements (TSCA) from which insurance contracts in the event of death have been taken out as a guarantee for the reimbursement of a loan.

Thus, death guarantees taken out under a borrower insurance contract will henceforth be subject to the TSCA at the common law rate of 9% provided for in article 1001 of the CGI.

This special tax, amounting to 9%, has so far only applied to part of the insurance premium, namely that relating to the loan repayment guarantee in the event of job loss and disability.

From 2019, the finance bill, therefore, provides for extending the base of the “special tax on insurance agreements” by removing the current exemption applied to the death benefit guarantee.

According to Bercy, “This is a measure of consistency which will allow uniformity of the method of taxation” of creditor insurance.

The special tax on insurance agreements will now apply to the entire premium paid on the borrower insurance contract for mortgage contracts.

Insurance companies are likely to pass this increase on to policyholders.

The rates for borrower insurance should therefore increase in 2019. An additional cost of a few euros on the monthly insurance premium for borrowers.

Only new contracts would be affected

According to Bercy, only new contracts will be affected. The revenue would be, from the taxes established for the year 2019, allocated to the company Action Logement Services (body currently managing the participation of employers in the PEEC construction effort).

The objective is to compensate for the loss of 300 million euros that Action Logement Services will experience as a result of the PACTE law. One of the provisions of PACTE providing for the abolition of the tax threshold of 20 employees for companies which will therefore no longer be subject to certain contributions, such as participation in the construction effort.

In the event of income exceeding the ceiling (provided for in me of article 46 of lawn ° 2011-1977 of 28 December 2011 on finance for 2012), the remainder would be returned to the general budget.

The special tax on insurance agreements (TSCA) would thus apply, from 2019 to all insurance paid by borrowers when buying real estate.

Households wishing to buy their home may have to pay a little more for their loan insurance from 2019.

A bad blow to the Bourquin amendment

This government decision provokes reactions because of the increase in taxation which is contrary to the Bourquin amendment.

It aims to help borrowers renegotiate their annual loan insurance contract to allow to restore purchasing power to borrowers through competition rates (in effect since 1 st January 2018).

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