Is life insurance tax deductible in the UK?

Individuals only get relief on certain trade union or police payments. For businesses, it depends on what's insured and whether the cover was taken out for the purposes of the trade.

No. Personal life insurance premiums aren't tax deductible, as life assurance premium relief ended on 5 April 2015. That relief only ever applied to policies taken out on or before 13 March 1984.

Since 6 April 2015, HMRC limits individual relief to payments to a trade union or a police organisation. In both cases, part of your payment must go towards superannuation (a workplace pension), life insurance or pension benefits.

Paying for life cover through your pension doesn't bring tax relief either. Life assurance premiums paid into a registered pension scheme after 5 April 2007 (or after 31 July 2007 for occupational schemes) don't qualify for pension tax relief.

Putting your policy in trust doesn't make the premiums tax deductible. A trust decides who receives the payout, and a policy under a trust deed isn't counted as part of your estate for Inheritance Tax.

The premiums can still matter for Inheritance Tax. Paying the premium on a policy someone else owns may be a potentially exempt or chargeable transfer, after any exemption such as normal expenditure out of income. For how payouts are taxed, see is life insurance taxable?

No. Sole traders and partners can't deduct premiums for their own life, accident or sickness cover from trading profits. In turn, what those policies pay out isn't trading income.

Setting up your own insurance fund doesn't change this. Money you hold back from profits to pay out on your or a partner's sickness, injury or death isn't an allowable deduction either.

A relevant life plan is for employees and directors. Legal & General excludes sole traders, equity partners and equity LLP members, and Royal London notes that some providers don't cover sole traders or equity partners.

Some sickness cover is treated differently. HMRC allows a business deduction for policies that cover business costs while you're ill, such as paying a locum (a temporary stand-in) or fixed overheads.

• Life insurance for the self-employed: how cover works when you have no employer benefits

Yes. A limited company can take out and pay for a relevant life plan for a director or employee. If you pass away, it pays out through a trust to your family and dependants.

These plans are 'non-registered', so they don't fall under pensions legislation. A payout from an employer's life policy would normally be taxed under the employer-financed retirement benefits scheme (EFRBS) rules, but a relevant life payout isn't charged under those rules.

To qualify on a single person, HMRC says the policy must meet conditions taken from the rules for excepted group life policies:

• it pays a capital sum if the person dies in any circumstances under a set age of no more than 75
• it has no surrender value (nothing is paid if cashed in) and provides only permitted sums or benefits
• its beneficiaries are restricted to individuals and charities
• tax avoidance is not a main purpose of the policy

In practice, Royal London notes that a relevant life plan can only provide life cover or terminal illness benefit. Disability and critical illness cover aren't allowed, and the term can't run past the employee's 75th birthday.

Can the company deduct the premiums?

Legal & General says HMRC usually views relevant life plans as an allowable business expense. Royal London says the premiums will normally be deductible if they're paid 'wholly and exclusively' for the trade as part of the employee's pay, though HMRC could challenge this.

Royal London says this matches HMRC's Business Income Manual: the employee's overall package should be reasonable for their contribution, compared with similar businesses. HMRC applies the same test to directors' pension contributions. It accepts them where a close company director's pay package is comparable with unconnected employees doing work of similar value.

Relief isn't guaranteed. Royal London notes a spouse working part-time might not get relief on a large plan that doesn't fit their work. Legal & General adds the favourable tax position may not apply if a policy was taken out to avoid tax.

Does the employee pay tax on it?

Paying the premiums doesn't trigger an EFRBS charge, but they may be taxable under other rules. HMRC says section 307 of the Income Tax (Earnings and Pensions) Act 2003 may exempt a benefit-in-kind charge (tax on a workplace perk), depending on the circumstances.

Royal London says HMRC doesn't treat employer-paid premiums as a P11D benefit (a reportable perk). Neither you nor your employer pays National Insurance on them, and they don't count towards your pension annual allowance.

Royal London also says the employee doesn't pay income tax on the benefits. Legal & General says payouts should be free from UK Income Tax and Capital Gains Tax.

Royal London's worked example compares a company paying £1,000 a month for ordinary life cover, taxed as a benefit in kind, with a relevant life plan. Our relevant life insurance calculator runs a similar comparison on your own pay.

• Ordinary life cover
• Relevant life plan

£0

£500

£1,000

£1,500

£2,000

£1,983

£1,000

£1,487

£750

Total gross cost Net cost after corporation tax relief

Cost to the company of £1,000 a month of life cover: Royal London's example

	Ordinary life cover	Relevant life plan
Total gross cost	£1,983	£1,000
Net cost after corporation tax relief	£1,487	£750

Royal London's own illustration, published on 21 May 2026. It assumes 25% corporation tax relief allowed under the 'wholly and exclusively' rules. The employee pays 40% income tax and 2% employee National Insurance on the top end of their income. Your figures depend on your tax position.

More about each insurer: Legal & General and Royal London.

Only if it's term insurance taken out solely to replace lost trading income, not a capital loss. Otherwise the premiums can't be deducted. To size the cover, try the key person insurance calculator.

Key person cover protects the business itself, with the employer taking out the policy in its own favour. It insures against lost profits if an employee, director or other key person dies or has a critical illness, sickness, accident or injury.

HMRC allows a deduction only when both of these conditions are met:

1. The sole purpose is to protect trading income The only purpose of taking out the cover is to meet a loss of trading income from losing the key person's services, not a capital loss.
2. The policy is term cover only For life policies, it must be term insurance paying only on death within the term, with no other benefits, and not running past the employee's usefulness to the company.

Premiums on whole life or endowment policies (savings policies that pay out at the end of a term) aren't deductible. Nor are critical illness or accident policies with an investment element, as HMRC treats them as capital expenditure.

Is the payout taxed?

Where a key person policy meets both conditions, the premiums are deductible and any payout is taxed as trading income. Where it doesn't, the premiums can't be deducted and the payout isn't taxed as trading income. Most business insurance works this way.

Whether the sole-purpose test is met is a question of fact, based on evidence of what the directors or owners sought to achieve. HMRC says a policy covering directors who are major shareholders, but not other employees, may point to a non-trade purpose.

HMRC gives the example of a director whose death would significantly affect the value of the company's shares. There, one purpose may be the non-trade aim of protecting the value of the director's shares and estate.

You don't pay benefit-in-kind income tax on a death benefit your employer provides. Many workplace packages include death in service cover linked to your salary, which stops if you leave that employer.

For the employee

Section 307 of the Income Tax (Earnings and Pensions) Act 2003 exempts employer-funded retirement or death benefits from the residual benefits-in-kind charge. That applies whether the cover is under a registered pension scheme or otherwise.

A death benefit can be a lump sum, pension, annuity or gratuity paid to another person or to a charity when the employee passes away. If a policy mixes qualifying and non-qualifying cover, the qualifying part is exempt only if its cost can be identified and separated out.

How schemes are set up and how employers claim relief

A group life policy insures more than one person and pays out on each person's death. It can often be provided under a pension scheme, and then the registered pension scheme tax rules apply instead of the relevant life rules.

Outside a pension scheme, an 'excepted group life policy' that insures people up to age 75 and only pays death benefits for their dependants doesn't give rise to tax charges, if all the conditions are met. Royal London lists small companies without enough people for a group scheme among the businesses a relevant life plan is for.

Employer contributions to a registered pension scheme aren't taxed on the employee and get relief under normal business expense rules. HMRC says they're normally wholly and exclusively for the trade (even for retired staff or another employer's staff) unless there's a non-trade purpose.

Outside a registered pension scheme, the rules differ. With a funded employer-financed retirement benefits scheme, the employer can only get tax relief when the employee or former employee receives a qualifying benefit, such as a taxable benefit.

• Death in service benefit: how employer life cover works and what it pays

Not if you're a sole trader or partner paying for your own cover. The law exempts income protection payments from income tax only if, among other conditions, no part of the premiums was tax deductible.

Personal, workplace and executive cover

If you pay for personal income protection out of taxed income, the payments are generally tax free. There's no cap on how much you can receive tax free.

Sick pay your employer funds, either directly or through an insurance policy, is taxed as earnings. If you paid part of the premiums yourself under an employer's scheme, the sick pay is tax free in proportion to your share of the premiums.

A business can also insure a named employee's ongoing sick pay through executive cover. Under Legal & General's Executive Income Protection, the policy pays a monthly benefit to the business if the employee can't work due to illness or injury.

Legal & General says the premiums shouldn't be a benefit in kind for the employee. They won't usually count as a business expense where the employee has a financial interest in the business, though the business may be able to agree this with HMRC.

Legal & General adds that a claim payment is in most cases a trading receipt, offset as a trading expense when used to fund the employee's sick pay. The employee receives the pay through PAYE after Income Tax and National Insurance.

HMRC checks what a business policy insures and whether it was taken out for the purposes of your trade. Before claiming any deduction, check these five points:

1. Check your business structure Sole traders and partners can't deduct premiums for their own life, accident or sickness cover. Relevant life plans are for employees, including directors on PAYE. Legal & General's isn't open to sole traders or equity partners, and Royal London says some providers don't cover them.
2. Match the policy to who gets the payout A relevant life plan must be put in trust from the start for the employee's family or dependants and can't pay out to a limited company. To insure the business itself against lost profits, the employer takes out key person cover in its own favour.
3. Test relevant life cover against 'wholly and exclusively' Royal London says relevant life premiums count as a trading expense so long as they're paid wholly and exclusively for the trade, as part of a reasonable pay package. HMRC could challenge this. It compares a director's overall pay with what unconnected employees get for work of similar value.
4. Confirm key person cover is term-only and for lost income HMRC only allows key person life premiums if the policy is term insurance with no other benefits, within the employee's useful period, and taken out solely to replace lost trading income. Keep evidence of the trade purpose, especially if the key person is a major shareholder.
5. Check how any payout is taxed If key person premiums are deductible, the payout is taxed as trading income. Legal & General's relevant life plan assumes a discretionary trust from the start, and it says its payouts should be free from UK Income Tax and Capital Gains Tax.