How is Group Life Insurance Taxed?

Could you explain to me a little bit about how Group Life Insurance is taxed? I’m thinking of introducing a scheme for my employees but want to know how HMRC treats Group Life Assurance for tax purposes first. It would also be good if you could let me know how HMRC taxes employees with Company Life Insurance so I can explain it to them!

Question asked by Tina Pearson

Many people wonder how Group Life Insurance is taxed, so it’s a good question to bring up!

Group Life Insurance — also known as Death in Service Insurance — is a popular benefit. It’s often one of the first employee benefits employers introduce.

In brief, it’s a fairly simple tax-efficient benefit that provides a tax free cash lump sum should an employee pass away.

With Group Life Insurance you as the employer pay for your workers’ life cover. Usually, Business Life Insurance is eligible for corporation tax relief.

For employees, the good news is that generally Group Life Insurance is not a taxable benefit in kind (P11d Benefit). This means there is no income tax to pay on the cover.

Also, Group Life cover is usually written into trust, which means the payout falls outside of the deceased’s estate for inheritance tax purposes. As a result, the beneficiaries won’t have to pay any inheritance tax on Death in Service payouts, either.

Great service assisting me obtain the right product. Would happily recommend Drewberry following their professional and efficient way of working.

Jonathan Chadwick
08/06/2020
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