Is a Life Insurance Claim in the UK Taxable?

Is a Life Insurance Claim in the UK Taxable?

It is assumed by many that beneficiaries of a life insurance claim payout would be expected to pay some form of inheritance tax. Inheritance tax though is not normally payable if the value of the estate is not more than £325,000 and your money and property are included in that.

The regular inheritance tax rate is 40 percent and is paid above the minimum only on the remaining portion of the investment.

Essentially, life insurance pay outs are usually not subject to capital gains tax or income tax.

** Prime recommends that you put your policy in Trust to avoid Inheritance Tax

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Life Insurance Products – How to Use Them

Life insurance products can be used in the following ways:

  1. pay out to a beneficiary when the policyholder dies
  2. as a way to invest
  3. as a qualifying or non-qualifying insurance policy

A policyholder can partially surrender a policy which is non-qualifying to defer the income tax charge

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Life Insurance Claims

Insurance claims are sometimes inevitable when someone dies and when a payout is approved, you may be wondering if any of the funds will be considered as taxable income.

If something terminal should happen to a life insurance policyholder, an insurance claim would need to be filed. If you have an insurance policy, you will probably ask if the payout will be taxed or not.

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Income from your Life Insurance Claim

The income from your insurance claim might not be taxable. If there is no explanation of the intent of the payment, it is likely to be intended to cover medical costs and pain and suffering.

It goes without saying that you should always ensure that you pay the required tax on your taxable income.

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Life Insurance Income Can be Non-Taxable

It is important to understand which income is non-taxable. Tax is usually paid on taxable income and you do not want to include any non-taxable income in your account calculations. When you work out taxable income, you will also need to consider tax benefits as well as tax deductions.

There are some types of income which are non-taxable in England and those types of income can usually be disregarded for tax purposes. Life Insurance claims are not taxable if you are ill or injured. If you are unemployed insurance claims are generally not taxable.

More About Inheritance Tax Responsibility Trusts and Life Insurance

Inheritance tax will be charged if your life insurance payment raises the gross value of your property to a figure above the minimum. However, if your life insurance policy is legally recognized as a Trust, the value of the fund can be exempted from the official inheritance tax limit.

If you decide to write the policy in trust, there is no added cost to do so if you already have a life insurance policy. So you can write a policy in trust any time after a policy has begun.

The return does not go to the legal property, so when you write a life insurance policy in trust, it will not be calculated in the inheritance tax threshold. So it can be safely assumed that the full payout amount of the policy will go to the person to whom it is intended – the beneficiary.

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Prime Financial Solutions and Mortgages Services

If you need help with Life Insurance and any of the following, Prime can help – telephone 01942 665 436:

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You always have an exceptional FCA approved team of life insurance & mortgage specialists with you on your journey with Prime from day 1. We provide excellent one to one services tailor made to your own individual needs and we make your time with us hassle free – we do all the heavy lifting. Prime is proud of the reputation it has built over many years, and this is largely reflected through the positive reviews we receive from customers in Wigan, the UK, on Trust Pilot and online.

Life Insurance is the simplest, most popular and best way to ensure your family is taken care of in the event of your death. Click here to use our quick contact form. You can also find out more about us here, and If you need help with Life Insurance and UK Life Insurance Claims, Prime can help. Click here to Get a Life Insurance Quote and you can telephone us 01942 665 436