Taxation of income protection insurance

Tax on policies designed to protect income during long term sickness

In the UK, the cost of providing income protection insurance provided for the workforce can be deducted from profits chargeable to corporation tax. Based on the principal made famous from a speech in 1944 made by the then Chancellor Sir John Anderson, income protection insurance is not tax deductible for an unincorporated business. In broad principal, where no tax relief has been obtained on the payment of premiums, no tax is payable on any pay-out. Employees are taxed on proceeds via pay-as-you-earn. Owner managed companies can arrange for greater flexibility as to the payment of insurance benefits, for instance through dividend payments. Owner managed business products are often branded as Executive Income Insurance.