How is Group Life Insurance Taxed?

Could you explain to me a little but about how Group Life Insurance is taxed? I’m thinking of introducing a scheme for my employees but want to know how HMRC would treat it for tax purposes first. It would also be good if you could let me know how employees with Company Life Insurance are taxed 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 employee benefit and often one of the first to be introduced by an employer. It’s a fairly simple tax efficient benefit which offers your employees and their loved ones peace of mind by providing a tax free cash lump sum should they 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 – so you might actually enjoy a lower tax bill for providing your employees with cover.

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

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.

I had the pleasure of dealing with Jake Mills in organising my insurance. Jake was fantastic to deal with — his patience and understanding really helped.

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