KHO: only the yield of a surrendered savings life policy is taxable

A policyholder who surrenders a Finnish savings life insurance policy (säästöhenkivakuutus) taken out on another person's life pays capital income tax only on the part of the payout that exceeds the premiums paidFinlex. The Korkein hallinto-oikeus confirmed this in KHO:2026:82, dismissing the appeal of the Veronsaajien oikeudenvalvontayksikkö and leaving the Keskusverolautakunta advance ruling in forceFinlex. The returned capital itself falls outside the Tuloverolaki 29 § 1 momentti concept of incomeFinlex, because the policyholder realises no new income on that part: money already paid in is simply coming back.

The case concerned a policy taken out in 1993Finlex, whose sole insured person was the policyholder's childFinlex. The policy combined life cover with a savings component credited at a 4.5 per cent actuarial rate plus client bonuses and a terminal bonus (terminaalibonus). At 10 October 2025 the savings stood at 11,174.58 euro, comprising 6,632.64 euro of yield and 4,541.94 euro of the policyholder's own paid-in capital, with a terminal-bonus entitlement of 11,709.34 euro on top. The premiums had never been deducted in taxation.Finlex The question was whether a partial or full surrender (takaisinosto) would make the whole payout taxable.

The tax recipients' oversight unit argued for full taxation. Under Tuloverolaki 34 § 1 momentti an insurance benefit under life insurance is taxable capital income in its entiretyFinlex, and the narrowing rule in 34 § 3 momentti — under which only the yield is taxable — requires, among other things, that the benefit be paid under the contract to the policyholder who is themselves the insured (3 momentti 2 kohta)Finlex. That condition was not met, since the insured was the policyholder's childFinlex, so in the unit's view the wording of 34 § 3 momentti 2 kohta had to apply and the full surrender amount was taxable.

The Korkein hallinto-oikeus disagreed.Finlex Taxing the surrender in full where the premiums were never deducted would tax the policyholder's own invested capital as income, contradicting the net-income principle behind the 29 § 1 momentti concept of income and the principle, visible in the court's case law (for example KHO 2025:4), that the same monetary benefit is counted as a taxpayer's taxable income only onceFinlex. The court therefore held that the payout stays outside the 29 § 1 momentti concept of income to the extent that no new income accrues and only the previously paid, non-deducted amount is returnedFinlex.

The taxable part is computed under Tuloverolaki 35 § 1 momentti: only the part of the insurance savings exceeding the premiums paid for the savings life policy and the associated death cover counts as yieldFinlex. Each payout made in the payment year — a partial surrender included — counts as taxable income in the proportion that, at the moment of payment, corresponds to the remaining yield's share of the remaining savings.Finlex The advance ruling covers tax years 2025–2026.Finlex The case was decided by justices Hannele Ranta-Lassila, Mika Seppälä, Vesa-Pekka Nuotio, Jaakko Autio and Tero Leskinen, rapporteur Anna Ahlberg.

Legal basis: Tuloverolaki 29 § 1 momentti, 32 § 1 momentti, 34 § 1, 2 and 3 momentti 2 kohta and 35 § 1 momentti, as applied in Keskusverolautakunta 30.3.2026 nro 10/2026, upheld in KHO:2026:82.