The tax position for this protection is actually relatively simple.
Premiums do not meet the ‘wholly and exclusively for the purposes of trade’ business protection test. This refers to whether the benefit from a policy will be ‘wholly and exclusively’ for the business.
As such, premiums are therefore not usually tax-deductible because the benefit is destined for the lender, not the business. Instead, premiums are treated as a cost of raising capital. You’ll therefore not be able to claim corporation tax relief on premiums.
However, a Business Loan Insurance payout is typically tax-free. This is because the benefit isn’t ultimately destined for the business, rather is earmarked for the lender to repay the loan.