Keyman insurance can protect your business from the sudden death of a key employee, but how does HMRC deal with your premium payments?

 

Unlike other forms of business insurance or financial protection like shareholder protection, the tax rules around keyman insurance aren’t the same for every company.

The way HMRC treats your keyman premiums will depend on the way you plan to use any payout and will determine whether you’re able to offset your premiums and benefits from any tax relief.


How keyman insurance works

A keyman insurance policy is a financial protection taken out by you as the company, to cover a key employee.

You’ll pay the premiums on the policy, and any payouts will also go to the business - not the individual or their family.

Keyman insurance is taken out to cover your business in the event a key member of staff passes away.

It will cover any potential loss of income as well as any costs to replace the deceased member of staff.

It can also be used to help cover the costs of any outstanding business loans.


Can keyman premiums be claimed as an expenseable cost?

The main thing you’ll need to know as a business is that you can offset the costs of your monthly premiums against corporation tax if you meet certain criteria.

First, the keyman insurance cover must be taken out to cover the loss of income from the death or critical illness  of the key employee.

And it must cover an employee who works for you i.e. it will no longer be tax deductible if the employee leaves.


Is a payout from keyman cover tax free?

It’s possible you won’t pay tax on a keyman cover policy for members of staff, but this will depend on the individual cover.


Can you put keyman insurance into a business trust for tax purposes?


Typically speaking, no.

Unlike shareholder protection, which is often written into a trust, keyman insurance won’t be written into a business trust.

This is because the premiums are owned and paid for by the business, and payouts are made to the business and not an individual.

One of the main reasons you’d write other cover into a trust is to help reduce any individual tax liabilities.


Other tax considerations for keyman insurance cover

As well as covering the loss of income due to the death of a key employee, keyman insurance cover can also be used to lessen other financial burdens.

This includes covering the costs of any business loans.


Speak to a Rigby Financial expert

As we’ve said, the tax rules around keyman insurance can be complicated and will differ from company to company and policy to policy.

If you’re considering taking out keyman insurance for one or more of your employees, get in touch with us today and we’ll be able to guide you through the process and get you a deal that gives you the efficient cover you need.

Contact us today for more information about setting up a keyman insurance policy.