At the end of the tax year, individuals and businesses alike are prompted to review their financial arrangements, ensuring they are both tax-efficient and aligned with their protection needs. Insurance plays a significant role in this process, often intersecting with tax planning in ways that are overlooked.
For businesses, taxable benefits are a key consideration at the end of the tax year, particularly for employers. Benefits provided to employees may be subject to income tax and National Insurance contributions. Employers should ensure that all benefits are accurately reported and valued, typically via payroll benefits, to remain compliant with HMRCs new requirements.
Private medical insurance is a common employee benefit that carries tax implications. While it provides valuable healthcare access, it is generally treated as a benefit in kind, meaning employees are taxed on its value, therefore employers should ensure they have received best price in alignment with cover, to minimise the tax liability for employees. Employers, too, must account for associated National Insurance contributions. As the tax year closes, it’s important to confirm that all such benefits have been properly recorded.
In contrast, personal life insurance and critical illness cover are usually arranged on an individual basis and paid from post-tax income. These policies do not typically attract tax relief, but they also do not create additional tax liabilities. However, placing life insurance in trust can help ensure that payouts are made outside of the insured’s estate, potentially mitigating inheritance tax exposure.
For business owners, protection insurance—such as key person insurance, shareholder protection, or loan protection—can be crucial. The tax treatment of these policies varies depending on their purpose and structure. For example, premiums for key person insurance may be allowable as a business expense in certain circumstances, while claim proceeds could be taxable. Reviewing these arrangements before the year-end ensures clarity and avoids unexpected tax consequences.
Finally, employee benefits packages should be reviewed holistically. Group life insurance, income protection, and critical illness schemes can offer tax-efficient ways to support staff while also benefiting from potential employer tax deductions. Salary sacrifice arrangements may further enhance efficiency, though they must be structured carefully to comply with current legislation.
Following our work with GRiD, we have noted the Government’s decision to bring unused pension funds into Inheritance Tax from 2027, and welcome the confirmation that death in service benefits will remain exempt. GRiD had warned that taxing these benefits could have led employers to change how they provide cover, so the exemption ensures their value as a tax-efficient employee benefit. However, with pensions now forming part of the taxable estate and added administrative complexity, GRiD urges employers to review their policies to ensure they are correctly aligned.
In summary, the end of the tax year is an ideal time to assess insurance arrangements across both personal and business contexts. A proactive review can help optimise tax efficiency, ensure compliance, and reinforce financial protection for the year ahead.
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For more information speak with our Clear Employee Benefits team.
