Is a life insurance payout taxable?

Is a life insurance payout taxable?

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I have a company which pays £4k per annum on keyman cover for its two Directors. The payout is being triggered due to a critical illness and I am unsure if the company will be required to pay tax on its receipt? Can anyone point me in the direction of some advice/legislation? Thank you.

I have heard in the past that to avoid tax on benefit the premiums should be added back on the tax computation, is this true?

Appreciate any guidance you can offer.

Thanks

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By KH
22nd Sep 2015 15:05

Biz or personal expense?

I've always worked on the principle that if the biz pays the expense, then the income is also biz ... therefore the payout is added to biz income of the year and taxed accordingly. Whereas if the individual pays the expense (via DLA or whatever), then it's a private expense ... accordingly the payout is also private income, so neither income nor expenses feature in the biz accounts or tax computations.

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By SteveHa
22nd Sep 2015 15:09

Things may have changed, but it used to be the case that if no deduction (or relief) was claimed for the premiums, then any payout was not taxed. If a deduction or relief was claimed, then any payout was taxable.

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Replying to tallulabrogan:
Portia profile image
By Portia Nina Levin
22nd Sep 2015 15:56

Common misconception

SteLacca wrote:

Things may have changed, but it used to be the case that if no deduction (or relief) was claimed for the premiums, then any payout was not taxed. If a deduction or relief was claimed, then any payout was taxable.

This is a common misconception, but it has never been correct.

It is the case that either:

the income is taxable and the premiums are tax deductible, orthe income is not taxable and the premiums are not tax deductible.

However, whether the income is taxable or not is not dependent on whether tax relief has been claimed. If tax relief has not been claimed when it should have been, the fact that tax relief has not been claimed will not prevent the income being taxable.

The links to BIM and the Taxation article provided by others refers.

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Replying to johnt27:
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By KH
23rd Sep 2015 18:03

I'll take that on board about common misconception

Portia Nina Levin wrote:

SteLacca wrote:

Things may have changed, but it used to be the case that if no deduction (or relief) was claimed for the premiums, then any payout was not taxed. If a deduction or relief was claimed, then any payout was taxable.

This is a common misconception, but it has never been correct.

It is the case that either:

the income is taxable and the premiums are tax deductible, orthe income is not taxable and the premiums are not tax deductible.

However, whether the income is taxable or not is not dependent on whether tax relief has been claimed. If tax relief has not been claimed when it should have been, the fact that tax relief has not been claimed will not prevent the income being taxable.

The links to BIM and the Taxation article provided by others refers.

Hah, I'll take that one on board ... thank you. Don't you just love the logic behind the tax legislation?

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By SJRUK
22nd Sep 2015 15:18

Taxable

It's a taxable receipt. - see BIM45525 - can't seem to paste in the link. but it provides the details.

 

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By User deleted
22nd Sep 2015 15:21

BIM45525

Have a read of  BIM45525If the directors are shareholders then read BIM45530 as well

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By stratty
22nd Sep 2015 15:43
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By Ruddles
22nd Sep 2015 16:03

To expand (and disagree slightly) on Portia's comment

Premiums may not be allowable on duality grounds but the proceeds nevertheless taxable as revenue income. So legitimate asymmetry is quite possible.

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