Is Relevant Life Insurance Tax Deductible?

The Short Answer

Relevant Life Insurance premiums are usually paid by the company and may qualify for corporation tax relief, subject to HMRC rules and the company's circumstances. The individual does not pay income tax or National Insurance on the premiums as a benefit-in-kind. However, the tax treatment is not automatic — it depends on how the policy is structured and whether it meets HMRC's conditions.

What HMRC Says

HMRC's guidance (in its Employment Income Manual) sets out the conditions under which a Relevant Life Plan will not be treated as a benefit-in-kind for the employee. The key conditions are:

• The policy must be a term assurance policy — it cannot have a surrender value
• The only benefit must be a lump sum on death (or terminal illness)
• The policy must be written in a discretionary trust
• The beneficiaries must be individuals — not the company itself
• The insured person must be an employee or director of the company

Where these conditions are met, the premiums are not treated as a benefit-in-kind, and the company may be able to deduct them as a business expense for corporation tax purposes.

Corporation Tax Relief

For the company to claim corporation tax relief on the premiums, the expense must satisfy the "wholly and exclusively" test — it must be incurred wholly and exclusively for the purposes of the trade. HMRC generally accepts that premiums for a Relevant Life Plan meet this test, provided the policy is set up correctly.

The relief is worth the company's corporation tax rate on the premium amount. At the current main rate of 25%, a £200/month premium could save the company £50/month in corporation tax — subject to the company's overall tax position.

No Income Tax or NI for the Director

Because the premiums are not treated as a benefit-in-kind, the director or employee does not pay income tax or National Insurance on them. This is a significant advantage over a personal life insurance policy, where premiums are paid from income that has already been taxed.

The combination of potential corporation tax relief for the company and no income tax or NI for the individual means the effective cost of cover can be substantially lower than an equivalent personal policy — though the exact saving depends on individual circumstances.

Important Caveats

Tax treatment is not guaranteed. The position depends on:

• How the policy is structured and whether it meets HMRC's conditions
• The company's overall tax position and whether it is profitable
• Changes to HMRC rules or legislation
• Individual circumstances

We always recommend seeking independent tax advice alongside protection advice.