Is Income Protection Taxable in the UK?
If you pay the premiums yourself, income protection payouts are completely tax-free in the UK. If your employer pays the premiums (group cover), payouts are taxed as earnings through PAYE. Most personal policies are tax-free, meaning you receive the full benefit amount when you claim.
Tax Treatment
Is Income Protection Taxable?
If you pay premiums, payouts are completely tax-free
Is Income Protection Taxable?
Group cover paid by employer is taxed as earnings
Is Income Protection Taxable?
You can't claim tax relief on premiums you pay
Is Income Protection Taxable?
Understand who pays premiums to know your tax position
Frequently Asked Questions
Is income protection taxable if I pay the premiums?
No. If you pay the premiums yourself from taxed income, the payouts are completely tax-free. This is the most common arrangement and means you receive the full benefit amount.
What if my employer pays the premiums?
If your employer pays (group income protection), payouts are treated as earnings and taxed through PAYE. You receive less than the headline amount, but your employer may provide higher cover to compensate.
Can I claim tax relief on premiums?
No. Unlike pension contributions, income protection premiums don't qualify for tax relief. However, the trade-off is tax-free payouts when you claim on a personal policy.
Does self-employed treatment differ?
Self-employed people who pay their own premiums receive tax-free payouts, just like employees with personal policies. The key is who pays the premium, not employment status.
Related Questions
This page provides general information only and does not constitute personal financial or tax advice. Tax rules may change. Income protection insurance products and their terms vary between providers. Always read the policy documentation carefully before purchasing. Your Home Finance is authorised and regulated by the Financial Conduct Authority.