Tax risk on farm loans in France: what is it and how do you deal with it?
Tax-risk insurance is not well known, yet it helps protect your loved ones better in the event of death or disability.
Buying farm machinery, modernising equipment or purchasing new land…: to develop the farm business, farmers often take out business loans. If the borrower becomes disabled or dies, death and disability insurance (ADI) protects the surviving spouse or the heirs by triggering repayment of the whole debt.
This repayment creates exceptional income that increases the taxable profit: the extinction of the debt generates an exceptional profit that is added to the farm's operating income. The knock-on effects: potential income tax, social security contributions and inheritance tax to be borne by the heirs or the partners. Yet they do not always have the cash needed to deal with this situation. This tax and social risk exists for all farmers taxed under the actual-profit regime (régime réel), with a greater or lesser impact depending on the capital outstanding.
If the farm is taxed under the micro-BA regime (the simplified flat-rate regime for small farms), there is no additional tax: the insurance payment goes to the lender, not to the farm, so it falls outside the scope of micro-BA (BOFiP, BOI-BA-BASE-20-20-40).
Tax-risk insurance is designed to deal with this situation. It is a pure-protection death insurance policy (with no savings value). In return for a premium, it pays a lump sum to a named beneficiary if the policyholder dies.
How does tax-risk insurance work?
After the death, if the farm continues to operate, the surviving spouse (or the heirs) named as beneficiary is very often unable to bear this sudden increase in tax, caused by the death and disability insurance paying out. By covering the additional tax, tax-risk insurance allows the survivors to keep the business going with peace of mind while coping with the higher tax bill.
When the spouse is the beneficiary of the policy, they can use this capital to pay the additional income tax, social security contributions and inheritance tax arising from the profit created when the farm's debts were extinguished. Note that the premiums paid during the life of the policy are not tax-deductible and do not give entitlement to any tax reduction. On the other hand, the capital paid out is not subject to income tax. When paid to the spouse or civil partner (PACS), it is exempt from inheritance tax; for other beneficiaries, a specific tax may apply above certain allowances (Articles 990 I and 757 B of the French General Tax Code). In addition, this capital does not form part of the policyholder's estate (Article L. 132-12 of the French Insurance Code), unless the premiums were manifestly excessive in relation to their means (Article L. 132-13).
Here are two examples to illustrate all this:
Example 1:
Mr and Mrs Dupré, sole-trader farmers, take out a business loan to finance the construction of farm buildings. Their bank then asks them to take out death and disability insurance. A few months later, Mr Dupré dies following an accident. His outstanding loans amount to €800k. His death and disability insurance covers the repayments he still had to make. The debt therefore disappears.
On the tax and social security side, however, nothing is settled. If the farmer is taxed under the actual-profit regime, the sums corresponding to this repayment are a taxable profit. The sudden end of the business triggers taxation of the current year's profits and capital gains, as well as of the amount of the loans repaid by the death and disability insurance. If the farm continues, for example in the hands of the heirs, tax on this profit can be spread over five years (Article 38 quater of the French General Tax Code); if the business ceases, it is taxed immediately. If the deceased's social security contributions are based on annual income, the profit for the year of death, plus the repayment of the loans covered by the death and disability insurance, will lead to an extra cost in social security contributions.
In our example, the additional compulsory tax and social security charges can represent a very large share of the amount repaid. If the spouse wishes to continue the business, such a burden, combined with the cost of hiring an employee, could well threaten the farm's survival.
Example 2:
Take a farming couple with no dependent children, where the husband dies.
Current profit: €30,000
Exceptional profit following the extinction of the loan debt: €150,000.
This gives a total taxable profit of €180,000 (for income tax and as the basis for MSA contributions — the farmers' social security fund).
Assuming the deceased's social security contributions are based on annual income, the current profit plus the exceptional profit leads to an extra €45,000 in tax and an extra €66,000 in MSA contributions (orders of magnitude calculated in 2018, without spreading, to be recalculated using current scales). Inheritance tax must also be added.
Remember that the extinction of the debt does not provide any cash to pay these additional sums.
In this scenario, the spouse's ability to continue the business is likely to be seriously compromised.
Hard knocks don't only happen to other people. Only suitable cover will allow your loved ones to cope financially with your death or disability.
The answer to this situation is tax-risk insurance.
Taking out this insurance depends on:
The outstanding loans
The legal form of the farm: check the arrangements for allocating the exceptional profit chosen by the partners in advance, in the articles of association or the company's internal rules. In this case, the tax-risk insurance must cover the remaining partners, not just the spouse of the partner concerned.
The make-up of the family
Whether or not the farm will continue in the event of death or total disability.
For a sole-trader farm:
If the business does not continue, there will be the normal tax + the additional tax linked to the exceptional profit.
If the business continues, there will be the normal tax + the additional tax + social security contributions on the exceptional profit.
Planning ahead for vulnerable situations
Death or disability before retirement is not a hypothetical scenario: at the end of 2023, 825,000 people were receiving an invalidity pension in France, 37,300 of them through the MSA (DREES).
To deal with such situations, precautionary savings alone are not a satisfactory answer. Putting 100 or even 300 euros a month into an investment will not build up a large enough sum for many years.
How much capital should be insured?
The difficulty lies in setting the amount of capital to insure. At the very least, it must cover the additional tax and social security costs. You therefore need to work out, with your farm accounting centre (centre de gestion) or your chartered accountant, the tax, social security and estate costs that would arise from the loan being repaid if the borrower died or became disabled. Ideally, the increase in tax and the capital paid out by the tax-risk insurance should match.
In addition, outstanding loans may decrease over time. It is therefore wise to review the insured capital downwards regularly to reduce the premiums. For the same capital, the older the policyholder, the higher the premium. You can review your policy every year, as it is renewed automatically on its anniversary date. As long as you pay your premium, you are covered. You are free to stop the policy on each anniversary date. A detailed review of the risks if one of the spouses dies makes it possible to decide with the farmer whether tax-risk insurance is worthwhile and to set the amount.
When taking out a business loan, any sole-trader farmer or company partner taxed on actual profits should consider the financial consequences of a sudden end to their working life. In particular, they should calculate the tax and social security charges linked to the disappearance of loans from the liabilities side of a balance sheet, as well as notary fees and any inheritance tax. Offered by your banker or your insurer, this optional tax-risk cover pays a lump sum outside the estate if the policyholder dies or becomes disabled. As a first approach, a capital of around half the loans covered by the death and disability insurance and shown on the balance sheet is often used, which corresponds to the additional tax and social security charges on the new business income. The right amount is calculated with your farm accounting centre.
The price depends mainly on the policyholder's age, state of health, criteria specific to each insurer (for example whether or not they smoke) and the level of capital chosen.
Who are the beneficiaries?
You are free to choose the beneficiary and can change it at any time
It is up to you to name the beneficiary or beneficiaries when you take out the policy, a choice you can change at any time. If you do not name anyone in particular, keep the « standard » clause, which remains general and names the spouse or, failing that, the heirs born, to be born or represented.
What should you look at in particular?
It remains to find a good policy, which can prove difficult in a very crowded market. Rule out straight away basic offers that only cover accidental death, which is much less common than death from illness.
Look at the exclusions in the policy — there can be many. Suicide in the first year and the consequences of major events (war, nuclear accident, etc.) are never covered. Beyond that, it depends on the insurer.
The list of sports (martial arts, scuba diving, etc.) and occupations (working more than 4 metres above the ground, for example) excluded from cover because they are considered risky is always fairly long.
It is, however, possible to obtain special terms negotiated individually with the insurer, particularly for occupations. But in all cases, the consequences of illnesses or accidents you did not declare when taking out the policy will not be covered.
Also check the policies' waiting periods (also known as deferral periods), during which the cover does not apply. While death is almost always covered from the start when it follows an accident, this is not necessarily the case when it results from illness.
Check this in the contract documents. Above all, insurers have filled their policies with waiting periods for additional cover: for example, the capital paid in the event of serious illness will only be granted ninety days after joining.
Finally, examine the disability cover very carefully, as it varies widely from one insurer to another. Your condition will very often be assessed by the insurer's medical adviser. What will you receive? Here again, it all depends on the policy.
In the event of total loss of autonomy, the death capital chosen when joining will be paid. But for lesser disability or incapacity, this capital may be reduced or replaced by a disability annuity.
These points are often complex and hard to grasp; only a thorough reading of the policies' information notices will make things a little clearer. Above all, don't hesitate to ask your contact for details before signing up.
Over the age of 50, premiums can vary by a factor of two between policies. Pay attention to the age limits for taking out the policy and for the validity of the cover, as well as to the medical formalities required.
Article updated in October 2026.
Sources (in French):
https://www.paysan-breton.fr/2016/09/sassurer-contre-le-risque-fiscal/
https://www.cogedis.com/risque-fiscal/
https://www.terredecompta.com/fiche-conseil/fiche-conseil-fiscalite/avantages-assurance-contre-risque-fiscal.html
http://www.compta.com/blog/agricole/agricole-protection-des-beneficiaires-sassurer-contre-le-risque-fiscal/4869
https://bofip.impots.gouv.fr/bofip/4567-PGP.html/identifiant=BOI-BA-BASE-20-20-40-20230628
https://bofip.impots.gouv.fr/bofip/1335-PGP.html/identifiant=BOI-TCAS-AUT-60-20230330
https://www.legifrance.gouv.fr/codes/article_lc/LEGIARTI000006793004
https://drees.solidarites-sante.gouv.fr/sites/default/files/2025-08/Fiche%207.6%20-%20Les%20pensions%20d%E2%80%99invalidit%C3%A9.pdf
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