Taxation of lump-sum benefits from life annuity insurance policies and surrenderable private endowment insurance policies (Pillar 3b)

Case 1 Surrender of a life annuity insurance with deferred annuity benefits after more than 5 years

A took out an annuity insurance policy in 2005, at the age of 58. The single premium amounted to CHF 250,000 and the agreed monthly annuity was CHF 1,500, payable for the first time on 20 December 2010.

As the performance of the insurance did not correspond to what A had envisaged, he submitted an application to buy back the insurance on 16 December 2010. On 18 January 2011, Insurance Company A paid out the amount of CHF 305,000.

How is the repurchase treated for tax purposes?

Case 2 Surrender of a life annuity insurance policy with deferred annuity benefits after less than 5 years

B took out an annuity insurance policy in 2008, at the age of 61 at the time. The single premium amounted to CHF 250,000, the insurance commenced on 20 December 2008 and the agreed monthly annuity was CHF 1,500, payable for the first time on 20 December 2013.

As the performance of the insurance did not correspond to what B had envisaged, he submitted an application to buy back the insurance on 16 December 2010. On 18 January 2011, Insurance Company B paid out the amount of CHF 305,000.

How is the repurchase treated for tax purposes?

Case 3 Surrender of an annuity insurance policy with immediate commencement of the annuity

C took out a life annuity insurance policy on 20 December 2008 with immediate commencement of annuity benefits from 1 January 2009 of CHF 12,000 per annum. The insurance is financed with a single premium of CHF 270,000. On 31 July 2011, C buys back the annuity contract. The repurchase amount is CHF 180,000.

What are the tax consequences?

Case 4 Restitution in case of death

D took out a life annuity insurance policy with deferred pension benefits on 20 December 2008. The insurance is financed with a single premium of CHF 270,000. The agreed pension start date is 1 January 2012.

On 20 September 2010, D. dies. The restitution sum of CHF 290,000 will go to the daughter as the sole heiress.

What are the tax consequences?

Case 5 Surrenderable endowment insurance with periodic premiums

On 5 January 2000, E took out an asset-creating endowment insurance policy (life-long death insurance) with periodic premiums. The capital is paid out in the event of death. E has decided to cancel the insurance contract and claim the actuarial reserve in the amount of the surrender value.

What are the tax consequences?

Case 6 Surrenderable endowment insurance with single premium

On 5 January 2000, F took out an asset-creating endowment insurance policy (life-long death cover) with a single premium. The capital is paid out in the event of death. F has decided to cancel the insurance contract and claim the actuarial reserve in the amount of the surrender value.

What are the tax consequences?

What would have been the tax consequences if F had taken out the insurance as early as 1996?

Case 7 Granting of a life annuity insurance

Mr. Viktor Meier, born on 15.3.1940, sold his property to his son, Nico Meier, on 1.12.2017 for CHF 500,000. The market value of the property is CHF 750,000. The purchase contract states that the son guarantees the father an immediately commencing life annuity of CHF 1,500 per month. The life annuity is concluded with a return guarantee in the event of death. The father dies on 31.3.2021.

What are the tax consequences for father Viktor Meier in the period from 1.12.2017 to 31.3.2021 with regard to income and wealth taxes?

What are the tax consequences for the son Nico Meier in the period from 1.12.2017 to 31.3.2021 regarding income and wealth taxes?

References

• BEHNISCH Urs R., Zur steuerlichen Behandlung des Rückkaufen und der Prämienrückgewähr von Rentenversicherungen, ASA 74 (2005/2006), p.97ff
• BENZ Rolf, Tax Consequences of the Life Annuity Buyback - Pragmatic Interpretation of the Law and Creative Legal Development of the Federal Supreme Court in the Intersection between Pension Provision and Asset Management, zsis) 04/09, p. 10ff.
• HELFENSTEIN Petra, The taxation of private pension insurance in Switzerland - a systematic account of cantonal differences, Tax Revue 2004, p. 86ff.
• JUNGO Daniel / MAUTE Wolfgang, Life insurance and taxes, A guide for the practitioner, Muri b. Bern 2003.
• LANG Peter / MAUTE Wolfgang, the business individual life insurance of pillar 3b, Steuer Revue 2003, p. 330ff.
• MAUTE Wolfgang, Aktuelles zur Besteuerung von Kapitalzahlungen aus Lebensversicherungen, Tax Review 1995, p. 403ff.
• MAUTE Wolfgang / STEINER Martin / RUFENER Adrian / LANG Peter, Tax and Insurance, Overview of the tax treatment of insurance, 3rd edition; Bern 2011.
• PETER-SZERENYI Linda, The Concept of Provision in Tax Law, Diss. Zurich 2001.
• RICHNER Felix, Non-redeemable private endowment insurance, Zurich Tax Practice 2003, p. 199ff.

Circular letters / instructions / leaflets

• Recommendation of the SSK of 27 October 2009 on the taxation of capital benefits from life annuity insurance (Pillar 3b)
• Circular Letter No. 24 1995/96 of 30 June 1995 from the Federal Tax Administration, Department of Direct Federal Taxation, Single Premium Endowment Insurance
• Leaflet of the Cantonal Tax Office Zurich, Taxability of pensions and lump-sum benefits, dated 9 December 2009 (Zurich Tax Book Part I, No. 16/013)
• Tax practice Tax Office of the Canton of Solothurn, Tax treatment of life insurance policies for free provision (pillar 3b), 2006 No. 2
• Leaflet Tax Office of the Canton of Aargau dated 30 September 2001, status 1 January 2015; Taxation of free pension provision pillar 3b; Volume I Reg. 4.3.

Federal Court Decisions

• Decision of 16.2. 2009, BGE 135 II 183
• Decision of 16.2.2009, BGE 135 II 195
• Decision of 1.5.2012, BGE 138 II 311