Are payments under an income protection plan tax free?

Are payments under an income protection plan...

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I have a client who has been receiving payments from an income protection plan covering his illness. The insurance company now want to pay him off with £100K lump sum. Is this payment tax free?
Doug Scott

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By Richard Willis
08th Aug 2006 08:45

No 'Yes/No' answer but...
Hi Doug

As a self-confessed non tax expert I do not have a 'yes/no' answer. However I DO know, as a policy holder, that there are limits, with such schemes as to how much one can insure/receive -v- normal salary. This would imply that if this ratio is exceded pain will be inflicted!

ALSO, as a synic of normal accountant proportions, I would guess that if the company is trying to get him to take the £100k it will be to THEIR benefit, not his. Notwithstanding the cash as income, how much of an annuity could he buy for this sum? I bet it's nowhere near what they are paying him. He will need to look VERY carefully at his illness prognosis, life expectancy, time to normal retirement, etc. before he accepts.

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