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is PHI income taxable?

is PHI income taxable?

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After many years contributing to a permanent health insurance policy i now find myself in the fortunate (if you can call it that) position of being able to successfully claim the replacement income of the policy.

I have never claimed tax relief for any of the premiums and have always treated them as a personal expense.

The policy pays out 70% of my income for the previous three tax years and will do so until i reach 65, some way off yet...!

My question is do i pay tax on the receipts from the insurance company?

I have always worked on the basis that unless i had treated this as a "benefit" paid by my company as part of my remuneration package, that the income generated would not be taxable.

Is this correct?

It does make a difference because the amount being received would put me into the HR tax category, so not something to get wrong...

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By Paul D Utherone
02nd Jan 2016 19:55

Depends...

If it's from a policy being paid by your employer, as appears the case, and for which the firm has obtained relief for payment of a premium as employee benefits, then the payments to you will be taxable under PAYE.

If it's a personal policy for which no relief was due, or a policy paid by the firm for you as the self employed owner or a partner and which has been disallowed in the firm's tax computations as a non business expense of an owner of the firm, then it will be tax free as payment of a personal policy.

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By carnmores
02nd Jan 2016 23:46

he paid them
Looks like self employed to me or own company perhaps, clarification?

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By Paul D Utherone
03rd Jan 2016 12:26

Indeed it depends what is meant by 'my company'?

If it is a limited company then the receipt will be taxable where paid from a policy paid by the company/employer as it would have been allowable as a staff cost to the company, but the premiums would not taxable on the Minion as an exempt benefit - presuming it is covered by Section 202(1)(c) ITEPA 2003 / EIM21820.

I suppose that if the premiums were never claimed for relief in a limited company there might be an argument that it was a personal policy and the company is a red herring, but that could depend a lot on the accounting for it. One might look on it as an exempt benefit that did not need returning on P11D and was allowable for tax, but the company had merely failed to make the claim so that it could still remain taxable - said the devil's advocate

If it is a self employed business and the Minion is the owner, not an employee, then his premiums would not have been allowable when paid and the receipt from the policy will not br taxable now.

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By The Minion
08th Jan 2016 16:24

thanks for the comments

the policy has always been in my name. The only reason for the reference to the company part was that the premiums were eventually paid by my own company but charged to DLA, not added back in comps.

 

So by the sound of it not taxable because i paid it (or was charged for it).

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By Paul D Utherone
08th Jan 2016 19:11

Sounds fair

Yes

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