Relevant life insurance tax treatment, in short: the company can usually deduct the premiums as a business expense, the employee is not usually taxed on them as a P11D benefit, and a payout made through the plan’s trust usually stays outside the employee’s estate for inheritance tax. Each “usually” rests on a condition, and the sections below give the statute or HMRC manual page behind it.

With a director or employee of your own company in mind, you can have an FCA-authorised broker price relevant life cover for them; send your company’s details through the form here and the broker phones you, free.

Can the company deduct relevant life premiums from its corporation tax?

The test is in section 54 of the Corporation Tax Act 2009: “In calculating the profits of a trade, no deduction is allowed for— (a) expenses not incurred wholly and exclusively for the purposes of the trade, or (b) losses not connected with or arising out of the trade.”

Aviva’s key features for its plan (EDCO1771, January 2026) say “the cost of the premiums is usually viewed as an allowable business expense”, as long as the local inspector of taxes is satisfied that the premiums meet the wholly-and-exclusively rules and are not excessive in the particular circumstances.

What “excessive” can mean is shown in HMRC’s Business Income Manual page on directors’ pension contributions (BIM46035, 1 April 2016): all or part of a payment may fail the test where “the level of the remuneration package is excessive for the value of the work undertaken by that individual for the employer.” Royal London’s adviser material (published 20 May 2026, for financial advisers only) treats relevant life premiums the same way, as part of the employee’s pay package. Its example of a case that might not get relief is a part-time spouse on a large plan. The HMRC pages it points to for this test are written about key person cover and pensions rather than relevant life itself, so your company’s accountant can confirm the treatment for your company.

A key person policy that pays the company is judged on a different footing (is key person insurance tax deductible?), and a sole trader cannot be covered as their own employee, Aviva says (life insurance for the self-employed).

Is relevant life cover a P11D benefit for the employee?

Not usually. The exemption is section 307 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA), which removes the charge under Chapter 10 of Part 3, the residual charge on taxable benefits, for provision an employer makes for a retirement or death benefit. HMRC’s Employment Income Manual note on the section (EIM21800, 13 February 2019) puts it this way: “No charge can arise under Part 3 Chapter 10 ITEPA 2003 in respect of the expense incurred by an employer in providing for the employee a pension or similar benefit payable on the employee’s death or retirement.”

The same note marks the edge of the exemption: “It does not prevent liability arising under any other provision that charges the cost of providing a pension.” HMRC’s relevant life page (EIM15045, 28 July 2020) is as careful: premiums could still be taxed under other provisions, and whether section 307 removes a benefit in kind charge depends on the circumstances.

The insurers describe the usual result. Aviva says that because the cover is not treated as a benefit in kind, the employee pays no Income Tax or National Insurance on the premiums; Royal London’s adviser material says the plans “are not usually treated as a P11D benefit”. Aviva adds that there is no guarantee the current tax position will apply in all cases or last the whole term, and that cover not written in trust may fall outside HMRC’s definition (see relevant life policies in trust). Whether anything needs reporting for a particular director is a point for whoever runs your payroll or accounts. Employer-paid cover that is not a relevant life plan is dealt with in is employer-provided life cover a taxable benefit?

With the tax side in view, what remains is the premium for your own director or employee, which a broker can price once you send the enquiry; it takes a few minutes.

Where do the rules sit: in statute or in HMRC’s manuals?

ITEPA section 307 and IHTA section 58 are sometimes called HMRC manual sections. They are sections of Acts of Parliament; HMRC’s manuals explain how it applies them.

ReferenceTypeWhat it does for relevant life
ITEPA 2003, section 393B(4)StatuteDefines a relevant life policy, including one on a single life
ITTOIA 2005, sections 481 and 482StatuteConditions for an excepted group life policy, part of which section 393B(4) borrows
ITEPA 2003, section 307StatuteLifts the residual benefit in kind charge
CTA 2009, section 54StatuteThe wholly-and-exclusively test for the company’s deduction
IHTA 1984, section 58StatuteDefines relevant property, the trusts that carry ten-year and exit charges
EIM15045 and EIM21800HMRC Employment Income ManualRelevant life policies; section 307
IPTM7020 and following pagesHMRC Insurance Policyholder Taxation ManualThe excepted group life conditions
IHTM17091 and IHTM17092HMRC Inheritance Tax ManualInheritance tax on excepted group life trusts

For a plan on one person, section 393B(4)(b) takes some of the group conditions in sections 481 and 482 and applies them to the single life insured, including the rule that avoiding tax must not be a main purpose. Aviva says its plan is designed to comply with them; the full list is in what relevant life insurance is. One line in EIM15045 matters for the rest of this page: of the three kinds of relevant life policy, “only the first is an ‘excepted group life policy’ for capital gains or other purposes”, and the first is the group kind.

Which insurers build their plans around these conditions, and how each sets up the trust, can be put to the broker on the free call-back.

How is the payout taxed, and is it free of inheritance tax?

Aviva says that under current legislation and HMRC practice its plan’s benefits are normally paid to UK residents without Income Tax or Capital Gains Tax (other payouts: is a life insurance payout taxable?). Royal London’s adviser material says the company pays no corporation tax on the benefits because it does not own the plan: it is set up under trust from the start and owned by the trustees.

Calling the payout free of inheritance tax overstates it. In Royal London’s account, a plan held in a discretionary trust is not the employee’s property and so stays out of their estate for inheritance tax, though the trust itself can face periodic and exit charges. HMRC’s inheritance tax pages on this subject (IHTM17091, and IHTM17092 of 2 August 2022) are written for excepted group life schemes, which EIM15045 says a single-life plan is not; treat them as HMRC’s reasoning for group cover, not a ruling on a single-life plan.

IHTM17092 says: “As the trustees have discretion over the payment of the death benefits, these are not treated as within the scheme member’s estate.” It also says these trusts have been relevant property trusts since 6 April 2006, subject to transitional provisions for trusts set up before then; relevant property is defined in IHTA section 58. That is what brings in ten-year and exit charges. HMRC’s reasoning is that a term policy is usually worth very little when it goes into trust: “So any distributions due to the death of an employee within the first ten years are likely to be taxed at 0%.” The exception is where a person whose life is covered is terminally ill when the policy is taken out, in which case HMRC says “it is possible that a subsequent exit charge may be taxed at greater than 0%.”

For the ten-year anniversary, the same adviser material gives the ceiling as “a charge of up to 6% on the value of the assets in excess of the trust’s available nil rate band”, and believes such a charge is unlikely in the vast majority of cases. Trust charges in general are explained in what a life insurance trust is.

Do pension allowances apply to relevant life?

No, on Royal London’s reading. A relevant life plan is a non-registered scheme outside pension legislation, so the premium does not touch the annual allowance and the sum assured has no link to the lump sum and death benefit allowance. The lifetime allowance older guides mention has gone, replaced on 6 April 2024 by the lump sum allowance and the lump sum and death benefit allowance. If your company already runs group death-in-service cover, how a relevant life plan would sit beside it is worth raising when the broker phones; death in service and your own life cover covers the basics.

Frequently asked questions

Can a company claim ordinary life insurance as a business expense?

It depends on what the policy is for. For a policy a company takes out in its own favour on a key person, HMRC’s BIM45525 says term cover can be allowable when its conditions are met, while premiums on whole life or endowment policies are capital expenditure and “will not be deductible”.

Does the tax position change if the employee leaves and keeps the policy?

It can. Aviva says a policy continued in the former employee’s own name no longer qualifies for some of the tax benefits of relevant life insurance, and that professional guidance should be sought before any assignment or change of ownership.

For cover priced on your own director or employee, send the enquiry and a broker will ring back at no cost. Tax rules can change; this page describes the law and HMRC guidance as read in October 2026 and is not tax advice. Next: what relevant life insurance costs, the cover limits, which insurers offer it, the pros and cons and the business cover guides.

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