Are Income Protection Premiums Tax Deductible?
For Employed People
No. If you are employed and pay for your own income protection policy, the premiums are not tax deductible. You pay them from your post-tax income. However, the benefit is that any payout you receive is tax-free.
For Self-Employed People
No (in most cases). HMRC does not generally allow self-employed individuals to deduct personal income protection premiums as a business expense. There is a common misconception that the self-employed can claim this as a deductible expense, but HMRC views it as personal expenditure.
For Employers (Group Income Protection)
Yes. If your employer provides income protection as a workplace benefit (group income protection), the premiums paid by the company are tax deductible as a business expense. However, any payout from an employer-funded scheme is treated as income and is subject to income tax and National Insurance.
Are Income Protection Payouts Taxable?
| Who Pays Premiums? | Premiums Tax Deductible? | Payouts Taxable? |
|---|---|---|
| You (personal policy) | No | No – tax-free |
| Your employer (group policy) | Yes (for employer) | Yes – taxed as income |
Relevant Life Policies for Directors
If you are a company director, an executive income protection policy paid by your company may offer tax advantages. The company pays the premiums as a business expense (corporation tax deductible), but the payout is taxable. Speak to your accountant about whether this is more tax-efficient than a personal policy in your specific situation.
Frequently Asked Questions
Personal: no, but payouts are tax-free. Employer-funded: yes, but payouts are taxed as income.
Personal policy: yes, tax-free. Employer-funded: no, taxed as income.