Is key person insurance tax deductible for a company?

Full answer

Key person insurance is taken out by a business on the life or health of an employee whose loss would hurt the company's profits - typically a founder, top salesperson, or technical lead. The tax treatment hinges on HMRC's long-standing Anderson principles, and deductibility and taxability of the payout usually move together. Deductible premiums: HMRC will generally allow premiums as a Corporation Tax expense where the policy is meant only to cover loss of trading income (not a capital loss such as repaying a loan), the term is short relative to the person's expected service, and the insured is an employee with no substantial shareholding. A common rule of thumb is that a controlling shareholder-director's cover fails the test, so those premiums are not deductible. The payout: if premiums were allowed as a trading expense, any sum received is normally taxed as a trading receipt, increasing taxable profit in the year. Conversely, if the policy fails the Anderson tests and premiums were not deductible, the proceeds are often not taxable. So the two outcomes are broadly symmetrical - you rarely get tax relief on the way in and a tax-free payout on the way out. Who it affects: limited companies and partnerships protecting against the financial impact of losing a crucial person. The Corporation Tax rate applied to any taxable receipt for 2026/27 is 19% for profits up to GBP 50,000 and 25% above GBP 250,000, with marginal relief in between - so the value of any deduction or the cost of a taxable payout depends on where the company sits in that range. Because each policy's facts differ, confirm the treatment with HMRC guidance or an accountant before assuming a deduction. Use a Corporation Tax calculator to model how a deductible premium or a taxable payout changes the company's bill.

Try the calculator