How Is A Death In Service Policy Taxed?

How Is Death In Service Insurance Taxed?

Under a Death In Service insurance policy, employers pay the premiums but the employee’s family are the ones who benefit from it. This can cause confusion around how and when HMRC taxes a Death in Service policy.

Simply put, neither the premiums or the payouts for a Company Death in Service policy is subject to taxation, making it one of the most tax-efficient options for Life Cover available.

Death In Service Tax For Employers

For employers, Death In Service policies are generally considered an allowable business expense, and therefore the premiums aren’t subject to corporation tax.

Death In Service Tax For Employees

For employees, HMRC doesn’t usually consider Death in Service Insurance a P11D or Benefit in Kind, which means that employees don’t need to pay additional tax if they receive it as an employee benefit.

Plus, as Group Life policies are written into a master trust (and therefore doesn’t form part of the employee’s estate), there’s typically no inheritance tax applied to the payout. This means that an employee’s loved ones receive the full cash lump sum without having to worry about probate or an inheritance tax bill.