If you run a limited company and you’re paying premiums for a relevant life policy, you may be able to claim corporation tax relief on those payments. This means the cost of the premiums reduces your company’s taxable profit, which lowers your corporation tax bill. Understanding how this works and what HMRC requires is essential to make sure you’re getting the relief you’re entitled to.
How Corporation Tax Relief Works
Corporation tax relief on relevant life policy premiums is straightforward in principle. When your company pays premiums for a qualifying policy, those premiums are treated as a business expense. Just like you can claim relief on office rent or staff salaries, you can claim relief on insurance premiums that are incurred wholly and exclusively for the purposes of your business.
Here’s the basic mechanism. Your company’s taxable profit is calculated by taking your turnover and subtracting all allowable business expenses. If your relevant life policy premiums total £5,000 per year and your profit before that deduction is £50,000, your taxable profit becomes £45,000. You then pay corporation tax on that lower figure.
Under current HMRC rules:
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Profits up to £50,000 are taxed at the Small Profits Rate of 19%.
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Profits over £250,000 are taxed at the main rate of 25%.
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Profits between £50,000 and £250,000 are subject to a tapered rate due to Marginal Relief, resulting in an effective corporation tax rate between 19% and 25%.
Depending on which rate applies to your company, that £5,000 deduction saves you between £950 and £1,250 in corporation tax.
The relief is claimed when you file your company’s Corporation Tax Return with HMRC. You’ll need to show the premiums as a business expense in your accounts and on your tax return.
What HMRC Requires for Relief to Apply
Not every insurance premium automatically qualifies for corporation tax relief. HMRC has specific rules about what makes a relevant life policy premium an allowable business expense.
First, the policy must be a genuine business expense. This means it must be incurred wholly and exclusively for the purposes of your business. A policy that protects the company’s finances if a key person dies, or that funds a buy-sell agreement between business partners, clearly meets this test. A policy that primarily benefits the director personally, rather than the company, will not.
Second, the policy must be held in the company’s name or for the company’s benefit. The company should be the policyholder and the beneficiary of any death benefit. If the policy is held personally by a director and simply assigned to the company, the tax treatment becomes more complicated and you should seek professional advice.
Third, the premiums must be paid by the company. The company’s bank account should record the payments to the insurance provider. If a director pays the premiums personally and then claims them back from the company, HMRC may question whether the expense is genuinely incurred by the company.
Fourth, you must keep records. Your company should retain copies of the policy documents, premium payment receipts, and correspondence with the insurance provider. You should also document why the policy was taken out and how it serves the business. This is standard good record-keeping practice and helps if HMRC asks questions.
When Relief May Not Apply
There are situations where corporation tax relief on relevant life policy premiums becomes problematic or does not apply at all.
If the policy is written in trust for the benefit of the director’s family rather than for the company’s benefit, relief will not apply. The expense test requires the outlay to be for business purposes, not personal ones.
If the policy is a personal accident or sickness insurance policy, rather than a life insurance policy, the rules are different. Life insurance premiums for business purposes can be relieved; other types of insurance may not be.
If the company is a close company and the policy is used to fund a payment to a shareholder or director on death, there may be inheritance tax or income tax implications that affect the overall tax position. The corporation tax relief is only part of the picture.
If the policy has a cash surrender value and the company is building up a large fund, HMRC may argue that the arrangement is an investment rather than a business expense. This is rare with term life policies but more common with whole-of-life policies. Again, professional advice is needed here.
Practical Steps to Ensure Premiums Qualify
To make sure your relevant life policy premiums qualify for corporation tax relief, follow these steps:
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Ensure the policy is written in the company’s name. The policyholder should be your limited company, not you personally.
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Document the business purpose. Write down why the company needs the policy. Is it to protect cash flow if a key employee dies? Is it to fund a buy-sell agreement? Is it to ensure the company can meet its obligations? This documentation protects you if HMRC asks questions later.
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Pay premiums from the company’s bank account. Do not pay them personally and claim them back. The company should pay the insurance provider directly.
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Keep all policy documents and payment records. Your accountant will need these when preparing your accounts and tax return.
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Tell your accountant about the policy. Make sure they know it exists and understand its purpose. They can then ensure it’s correctly recorded in your accounts and claimed on your tax return.
Getting Professional Advice
The rules around corporation tax relief on insurance premiums are not always simple, especially if your circumstances are unusual. If you’re unsure whether your policy qualifies, or if you want to set up a new policy and want to understand the tax implications before you commit, you should speak to a qualified financial adviser or accountant who understands both insurance and tax.
They can review your specific situation, confirm that relief applies, and advise on any other tax implications. This is money well spent if it means you claim relief correctly and avoid problems with HMRC later.
This article is for information only and does not constitute financial advice. To find out if a relevant life policy is right for your circumstances, speak to a qualified financial adviser. The benefits to the treatment of tax will depend on your individual circumstances and may be subject to change in future.
References
Financial Conduct Authority. (2026). COBS 4.5 Communicating with retail clients (including financial promotions). FCA Handbook. https://handbook.fca.org.uk/handbook/cobs4/5.html
HM Revenue & Customs. (2023, January 5). Marginal relief for corporation tax. GOV.UK. https://www.gov.uk/guidance/corporation-tax-marginal-relief
HM Revenue & Customs. (2024, May 22). Corporation tax rates, expenses and reliefs. GOV.UK. https://www.gov.uk/corporation-tax-rates