Do I Pay Tax on Income Protection Benefits?

I’m thinking about taking out an Income Protection policy. I can’t seem to find any information about how I pay tax on the benefit if i make a claim?

Question asked by Richard Wright
31/05/2019

Income Protection payouts are generally tax-free. For personal policies, as you pay for the premiums yourself from your net income then the policy has already effectively been taxed. This is why most insurers generally only allow you to insure 65% of your gross income as it works out as approximately the same as your net income.

Some company directors pay for their income protection premiums via their business. This is known as Executive Income Protection.

Here, the business pays the premiums and they’re usually a tax-deductible business expense. This means the policy hasn’t been taxed at the payment stage and so is generally taxable as income on a claim. Benefits will be paid back into the business as the company owns and pays for the policy and on distribution from there to the individual insured will be taxed accordingly.

We would recommend you speak to your tax adviser or accountant for advice to ensure you are clear on any tax implications.

If you are considering a setting up Income Protection whether personally or through your business please do not hesitate to pop us a call on 02084327333, we are here to help.

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If you are unhappy with our service, we have a complaints procedure, details of which are available upon request. If you are unhappy with how your complaint has been dealt with, you may be able to refer your complaint to the Financial Ombudsman Service (FOS). The FOS website is www.financial-ombudsman.org.uk.

Drewberry Ltd is registered in England and Wales. Companies House No. 06675912

Drewberry Ltd registered office: Telecom House, Preston Road, Brighton, England, BN1 6AF. Telephone 0208 432 7333

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