Is Life Insurance Tax Deductible? UK Business Expense Rules Explained

Is life insurance tax deductible? Only when a business pays for it for a business purpose. Sole traders' and partners' personal cover generally isn't, while a limited company can typically deduct relevant life premiums.

For limited companies, some other policies are also typically treated as an allowable expense, while others, such as shareholder protection, are not.

This guide sets out how HMRC typically treats each type of cover, with a summary table. If you want the bigger picture first, start with the main types of business life cover. Everything below depends on your individual circumstances and current legislation, which can change.

Key facts

• For sole traders and partners, premiums on personal life cover are generally not deductible when working out trading profits, according to HMRC's Business Income Manual (BIM45560).
• Relevant life insurance premiums are typically treated as an allowable business expense for the company, with no benefit in kind for the employee in most cases.
• Shareholder protection premiums are generally not deductible for the company.
• Key person insurance premiums may be deductible where the sole purpose is to meet a loss of trading income and the policy is term cover only; if they are deducted, the payout is usually taxed as trading income (BIM45525).

Is life insurance tax deductible in the UK?

Life insurance is only tax deductible in the UK when a business pays for it for a business purpose. A self-employed person paying for their own family cover generally gets no relief. A limited company paying for the right policy, such as relevant life, typically can deduct the premiums from its profits.

So is life insurance a business expense for a sole trader? No: a sole trader and their business are the same legal person, so family cover is a personal cost. A limited company is a separate employer, so it can pay for cover as part of the cost of employing you.

Is life insurance tax deductible for the self-employed?

So, is life insurance tax deductible for self-employed people? Generally not, for sole traders or anyone else who is self-employed. Premiums on personal life cover are treated as a personal expense, because the cover protects your family rather than earning profits. HMRC's Business Income Manual (BIM45560) says these premiums are not deductible when calculating trading profits.

Payouts from personal cover are generally tax free, and writing the policy in trust could keep the payout outside your estate for inheritance tax, charged at 40% above the £325,000 nil rate band.

Limited company directors have more options, but that isn't a reason on its own to incorporate. Speak to your accountant and a qualified adviser first.

Can partners and LLP members claim life insurance as a business expense?

Partners can generally not claim life insurance as a business expense. HMRC treats cover on a partner's own life in the same way as a sole trader's personal policy: the premiums are not deductible, even if the partnership pays them.

Partnership protection is also generally not deductible, as it protects personal interests rather than the trade. LLP members are usually treated as self-employed, so the same broad position typically applies, but check with your accountant.

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

Can life insurance be a business expense for a limited company? Often, but it depends on the policy. Relevant life, qualifying key person cover and group life schemes are typically deductible. Shareholder protection generally isn't.

For how the company route works in practice, read can my limited company pay for my life insurance?

Is relevant life insurance tax deductible?

Relevant life insurance premiums are typically an allowable business expense for the company, where the cover passes the wholly and exclusively test as part of the employee's pay package. HMRC decides this case by case.

Relevant life is defined in HMRC's Employment Income Manual (EIM15045). In most cases there is no benefit in kind, because section 307 of ITEPA 2003 can exempt employer provision for death benefits, depending on the circumstances.

The payout normally goes to your family through a discretionary trust, typically outside your estate for inheritance tax. For more, see relevant life insurance and HMRC: what the rules actually say.

Is key person insurance tax deductible?

Key person insurance premiums may be tax deductible, but only if the policy meets HMRC's conditions. HMRC's guidance on key person insurance (BIM45525) says the sole purpose must be to meet a loss of trading income from losing the person's services, and life cover must be term insurance with no other benefits.

Cover on a significant shareholder may also be questioned, as it can look like it protects a personal interest. Advisers often use a shareholding of 5% or less as a rough guide, not a legal limit.

Where premiums are deducted, the payout is normally taxed as trading income. Where they aren't, the payout is generally not taxed, though HMRC gives no assurance. Read more about key person insurance.

Is shareholder protection tax deductible?

Shareholder protection premiums are generally not tax deductible for the company. The cover protects the owners' personal stakes rather than the company's trade, so it doesn't usually pass the wholly and exclusively test.

With own life in trust cover, each shareholder insures their own life in trust for the other owners, and if the company pays, the shareholder covered usually faces a benefit in kind charge. With a company share buyback, the company owns the policies and uses the payout to buy back the shares. See how shareholder protection is usually structured.

Is group life insurance tax deductible for employers?

Group life insurance and death in service premiums are generally treated as an allowable business expense for the employer, because staff benefits are a normal cost of employing people. For employees, cover under a registered scheme is not normally a taxable benefit.

HMRC sets out the section 307 exemption that typically applies in its guidance on pension provision (EIM21800).

Group schemes also have pension allowance and inheritance tax rules, explained in death in service benefit: tax and HMRC rules.

What if the company pays for a personal policy?

If a company pays the premiums on a director's personal life policy, the cost is usually deductible for the company as an employment cost, but the director is taxed on it. Because the director owns the policy, the premium is typically treated as earnings or a benefit in kind.

That's why many directors look at relevant life instead. The company owns the policy, so relevant life avoids the personal tax charge in most cases. Our page on tax-efficient life cover through your company explains how it works.

Life insurance tax treatment at a glance

Is life insurance tax deductible for your business? The table below summarises how each type of life insurance is typically taxed in 2026/27. If you are asking "is life insurance an allowable business expense?" or "can I claim life insurance as a business expense?", the answer depends on who owns the policy and why it is in place. Each row is a general position that depends on your circumstances and current legislation, which can change.

What does HMRC say about the "wholly and exclusively" test?

HMRC's wholly and exclusively test says a business can only deduct a cost if it is incurred wholly and exclusively for the purposes of the trade. The rule sits in section 34 of ITTOIA 2005 for sole traders and partners, and section 54 of the Corporation Tax Act 2009 for companies.

HMRC explains the test in its Business Income Manual (BIM37000). A cost with a dual purpose, part business and part personal, generally fails, which is why a sole trader's family cover isn't deductible.

For companies, the value of a deduction depends on the rate of corporation tax. In 2026/27, corporation tax is 19% on profits up to £50,000 and 25% over £250,000, with marginal relief between. As an illustration, a qualifying £100 monthly premium could cost a company £81.00 at 19% or £75.00 at 25% after relief, though this is not a promised saving.

HMRC can challenge any deduction. Our guide to business life insurance and how each type works gives the wider picture, but speak to a qualified adviser and your accountant about your own position.

Want to check how your cover is likely to be taxed? Book a free discovery call with Executive Life.

Frequently asked questions

Is life insurance tax deductible for the self-employed?

Life insurance is generally not tax deductible for the self-employed. HMRC treats premiums on a sole trader's or partner's own life cover as a personal expense, not a business one, so there is no relief against trading profits. The payout is usually tax free in return. This depends on your individual circumstances and current legislation, which can change.

Is life insurance a taxable benefit?

Whether life insurance is a taxable benefit depends on the policy. A personal policy that your employer pays for is usually taxed on you as earnings or a benefit in kind. Relevant life policies and registered group life schemes are not normally treated as a taxable benefit, because section 307 of ITEPA 2003 can exempt them, depending on the circumstances.

Can I claim life insurance through my limited company?

Many directors can claim life insurance through their limited company using a relevant life policy, where premiums are typically an allowable business expense with no benefit in kind in most cases. HMRC decides deductibility case by case. Find out how it works in can my limited company pay for my life insurance?

Is key person insurance tax deductible?

Key person insurance is sometimes tax deductible. HMRC's guidance says the sole purpose must be to meet a loss of trading income and the policy must be term cover with no other benefits. HMRC also looks at whether the person insured is a significant shareholder. Where premiums are deducted, the payout is normally taxed as trading income.

Is group life insurance tax deductible for employers?

Group life insurance premiums are generally treated as an allowable business expense for employers, and cover under a registered scheme is not normally a taxable benefit for staff. Pension allowance and inheritance tax rules also apply. See death in service benefit: tax and HMRC rules for the detail.

Can you claim tax relief on personal life insurance?

In the UK there is generally no tax relief on personal life insurance premiums paid from your own income, whether you're employed or self-employed. Tax relief typically only applies where a company pays for a qualifying policy, such as relevant life, as a business expense. This depends on your circumstances and current legislation, which can change.

Written by

Alex Ogden DipFA | Director | Executive Life

Alex Ogden DipFA holds the Level 4 Diploma for Financial Advisers (DipFA) awarded by the Walbrook Institute London, formerly known as the London Institute of Banking & Finance (LIBF). He is authorised by the FCA Ref: AJO01072.

Tax rates and thresholds are subject to change. This article will be updated following each HMRC Autumn Budget or Spring Statement where relevant thresholds change.

Executive Life is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 985058. Registered office: Unit 6, Birchy Cross Business Centre, Broad Lane, Solihull, West Midlands B94 5DN.

This article is for general information only and does not constitute financial advice. Tax treatment depends on individual circumstances and current legislation, which may change. Always speak to a qualified adviser before making financial decisions.