Life Insurance with tax relief
Before 6 April 2006 it was possible for UK residents to obtain tax relief on life insurance premiums. This product was referred to as 'pension term' or 'life insurance with tax relief'. The example lower down the page explains how this worked.
However, on 6 December 2006, Gordon Brown, then acting as Chancellor, announced the removal of tax relief on new life policies taken out after that date.
The good news is that we can still find you the cheapest life insurance. We search all the leading insurers to find the lowest premiums, and then provide a discount to reduce the costs further.
Special Offer: Apply for cover within 14 working days of getting your quote on this site and we will send you a £20 M&S voucher when your plan starts.
Pension Term Assurance
A 40 year old (non-smoking) man requires £200000 life cover for 20 years.
The cheapest 'normal' life insurance (without tax relief) is Norwich Union at £21.60 per month.
| The cheapest quote for 'life insurance with tax relief is also with Norwich Union. You then get tax relief of 22% at source. |
£23.09 pm (gross) |
| You pay: | £18.01 pm (net) |
| Your direct debit will be for £18.01. Norwich Union will claim the extra 22% from the Inland Revenue. | |
| If you are a high rate taxpayer (40%) then you will be able to claim a further 18% of the gross premium back via your tax return. | £4.15 pm |
| As a high rate taxpayer the effective cost is only: Your direct debit will be £18.01 net of basic rate tax and you will claim a further £4.15 per month via your tax return. |
|
| This saves you 35% compared to the cost of a non tax relief policy. | £13.86 pm |
There are a few points you needed to consider before taking out a life policy with tax relief, the main ones being:
- You must be a UK resident.
- Tax relief is only available on life insurance. It is not available if you require other elements adding to your plan such as critical illness or waiver of premium.
- You can only be insured for up to the 'lifetime allowance' - currently £1.5 million. This figure is further reduced by any pension fund accumulated. Any excess will be taxed (currently at 55%).
- Under current tax rules, anyone who is UK resident (with or without earnings) can pay up to £3600 per annum (gross) into pension schemes (including life assurance with tax relief) and obtain tax relief on their premiums. If you wish to pay more than this limit you can do, subject to providing evidence of earnings. You can then contribute up to the level of your earnings.
- You could lose your tax relief in future if:
a) The Government chooses to remove tax relief.
b) You cease to be a UK resident.
In this situation your premium would revert to the 'gross' amount shown on your quotation.
We would also like to point out that existing policyholders are not entitled to tax relief. To obtain tax relief it is necessary to reapply for one of the new style plans. We recommend that you do not cancel any existing cover until your new plan has been accepted.
Please remember that the tax relief was scrapped for new policies on 6 December 2006. However you can continue to enjoy tax relief on policies taken out under the scheme before this date. If you are uncertain about any aspect of arranging your policy, please contact us.
