Is shareholder protection insurance tax deductible? Usually not, when each owner pays the premiums on their own life: Aviva's material for advisers says those owners do not benefit from tax relief. The answer changes if the company pays, and the company route brings in the benefit in kind and P11D questions as well.

Owner-directors who return the form on this page will be rung by an FCA-authorised broker, without charge, to explain how a shareholder policy is owned and paid for. The tax treatment of your own arrangement is a matter for your accountant, and what follows is HMRC's published position and the insurers' adviser guidance, not tax advice. Tax rules can change.

Are the premiums deductible when each owner pays their own?

The common set-up is that every owner takes out a policy on their own life, writes it in trust for the other owners and pays for it personally. Legal & General's technical guide for advisers (W13813, February 2026) describes it this way: "A Life or Life with Critical Illness policy is written on the owner’s life and then put in trust from outset for the other owners." It adds that each owner undertakes to pay premiums on their own life.

On the tax relief that follows, Aviva's guide for advisers, The business case for business protection (AL15009, July 2026), says: "Each shareholder usually pays the premiums for policies they take out for shareholder protection on their own life. This means they don’t benefit from tax relief." Paying out of your own taxed money is the reason. The premium is not a business expense of the company, because the company is not the one paying.

Partners are in the same position. For sole traders and partners, HMRC's Business Income Manual, on its BIM45560 page, says: "Premiums paid by a sole trader or partner to provide life, accident or sickness insurance cover for him/herself or a partner are not allowable deductions in computing trading profits." Where the owners are partners rather than shareholders, the policy is called partnership protection, and the structure and cost are covered in what shareholder protection insurance is and what it costs.

What if the company, rather than the owners, pays the premiums?

Two insurers' adviser guides describe the company-pays route, and they stress different consequences. Aviva, writing about its own Business Life Insurance Options plan, says that if the business pays on behalf of a shareholder, the premiums "will be classed as a deductible expense for the business and may give rise to a benefit in kind tax charge". Legal & General says that if a company pays the premium on behalf of a shareholding director, "this will be classed as remuneration and the shareholding director will become liable for income tax and National Insurance Contributions (if applicable) on it". Both describe the same set-up, an owner's own-life policy in trust for the other owners with the company paying the premium, and they are less at odds than they look: one speaks to the company's deduction, the other to the director's tax. Royal London's adviser guidance joins the two, saying such premiums will usually be regarded as a trading expense of the company but taxed as income on the shareholder. All three are insurers' readings for advisers, not HMRC's wording.

HMRC's manuals say that deductibility turns on purpose. Its guidance on remuneration, BIM37745, says that what a company spends on remunerating its employees and directors, benefits in kind included, is normally allowable, but adds: "But this might not be the case in all situations and so you may need to consider the payer’s purpose." The case it relies on, Samuel Dracup & Sons Ltd v Dakin, concerned endowment policies a company bought for its two remaining directors, and the company lost because the court accepted that the directors had laid out the money to benefit themselves.

HMRC's key person guidance, written for policies a company takes out in its own favour, shows the kind of purpose it looks for. BIM45530 lists a policy on directors who are major shareholders, but not on other employees, as one circumstance in which there may be a non-trade purpose. Where a director's death would significantly affect the value of the shares, one purpose may be what the manual calls "a non-trade purpose of protecting the value of the director’s shares and therefore the value of their estate". Whether that reasoning reaches a company paying for shareholder protection is for its accountant to judge. The key person rules themselves are on key person insurance tax treatment.

Is shareholder protection a benefit in kind, and does it go on a P11D?

It can be, when the company pays for a policy that covers a director or employee, but that depends on how the arrangement is built. The insurers above say a company-paid premium can leave the director with a tax charge, either as a benefit in kind or as pay. GOV.UK's guide for employers sets the general rule: a company that provides expenses or benefits to employees or directors must usually tell HMRC and account for tax and National Insurance. The reporting page adds: "Complete a P11D for each employee you’ve provided with taxable expenses or benefits that were not payrolled."

If the owners each pay their own premiums, as in the first section, there is nothing for the company to report, because it has provided no benefit. In Legal & General's set-up each owner pays, and the guide suggests evening out any difference in premiums through pay or drawings where possible. Because who owns the policy and who pays drives the tax, you could have the ownership options explained before you speak to your accountant, which a broker can do by phone after you use the form here. Payroll treatment of a company-paid premium in your own case is for your accountant to settle. The wider rules for employer-paid life cover are in is life insurance a taxable benefit, and cover that a company buys for an employee's family is on relevant life insurance tax treatment.

Do the owners pay tax when a shareholder protection policy pays out?

For an owner's own-life policy held in trust, Aviva's adviser guide says: "There is no income tax liability on the policy proceeds in the event of a life and/or critical illness claim." It also says "Life policies are usually exempt from capital gains tax in the hands of the original owner." The reason is in the CG69040 page of HMRC's capital gains manual: the main aim of TCGA92/S210 is to exclude most life insurance policies from Capital Gains Tax. It adds a limit: "Gains on a life insurance policy are not always exempted after a disposal of all or any part of the rights under the policy by the original policyholder."

Critical illness cover has its own wrinkle. Legal & General's guide warns that a Capital Gains Tax liability may arise if an owner's share of the business is sold because of a terminal or critical illness. The tax there falls on the sale of the shares, not on the policy money. For how payouts are taxed more generally, see is a life insurance payout taxable, are critical illness payouts taxable and is life insurance taxable in a trust. Inheritance tax and business relief on the shares have their own place in life insurance and inheritance tax.

What changes with a company share purchase?

In a company share purchase the company, not the surviving owners, buys the deceased owner's shares, and, as Royal London's guidance for financial advisers describes it, the company takes out a plan on the shareholder's life so that the proceeds are paid to the company. The tax on the purchase itself comes from the Companies Act and the distribution rules, not the insurance. HMRC's Company Taxation Manual, at CTM17505, says: "To effect a valid purchase the company must make full cash payment on purchase." A loan account or a transfer of another asset does not count as payment.

It also says that if the company pays more than the capital originally subscribed for the shares, a distribution arises, unless the purchase is by an unquoted company that meets the conditions for an exempt purchase of own shares. CTM17510 explains that part of the payment is viewed as a repayment of share capital and so is not a distribution to that extent, with the rest, unless an exemption applies, taxed in the seller's hands as an income distribution. That tax falls on whoever sells the shares, not on the company's premiums.

The premiums are a different question. Royal London's guidance answers it directly: "Premiums paid by a limited company under a company share buy-back arrangement will not get relief, but the shareholder will not be taxed." Like the other insurers' statements here, that rests on the insurer's understanding of current law and practice, so whether a given company's arrangement fits it is a point for its accountant.

Trust-based cover for the owners or a company purchase is a choice a broker can talk through, and sending the form here gets you that call at no charge.

Frequently asked questions

Does a partnership get tax relief on shareholder protection premiums?

HMRC says premiums a partner pays for life cover on themselves or a partner are not allowable deductions in computing trading profits, per the BIM45560 page. Aviva's adviser guide says the same of partnership protection: each partner usually pays for the policy on their own life, so there is no tax relief.

Does writing the policy in trust change the tax?

Legal & General says its own trust document cannot be used when a policy is not written in trust from the start, and that an Income Tax charge known as Pre-Owned Asset Tax may arise if the trust fund reverts to an owner who leaves the business, though with a policy of little value the effect is likely to be negligible. Aviva says claim money is not part of the policyholder's estate if it is placed in an appropriate trust.

Which professional can confirm the tax on my own set-up?

Your accountant or a tax adviser, because the answer depends on who owns the policy, who pays and why. Aviva's guide says anyone in doubt should get tax advice before setting up business protection. A broker can explain the policy side, such as ownership and trust options, but does not give tax advice. The other policies a business might need are laid out under business protection cover.

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