Tax treatment group life

~3 min read

Category: Group life · Reviewed by Taylor Watts, Broker · New Business · Last reviewed 2026-06-10

In short: The tax treatment of group life cover differs between registered group life pension schemes (governed by Part 4 Finance Act 2004) and excepted group life policies (governed by section 480 ITTOIA 2005). In both cases the employer’s premium is deductible for corporation tax purposes and the cover does not give rise to a benefit-in-kind charge on the insured employees. The lump sum is normally paid free of inheritance tax because it is held on discretionary trust outside the deceased’s estate.

Category: Group life Also known as: GLA tax, group life taxation Key statutes: Finance Act 2004, Finance Act 2024, ITTOIA 2005, IHTA 1984 Related concepts: Registered group life policy, Excepted group life policy, Lump sum death benefit

Definition

Tax planning is the primary reason an employer chooses between registered and excepted structures. For most schemes, the registered route is simpler and adequate. For schemes likely to have lump sums materially above the LSDBA, the excepted route is preferred.

Legal / Regulatory basis

(i) Corporation tax: the employer’s premium is deductible as a normal trading expense under the Corporation Tax Act 2009. (ii) PAYE/NIC: no benefit in kind arises because the cover is for the benefit of the employee’s family rather than the employee personally (ITEPA 2003 s.307 specifically exempts employer-provided life insurance benefits where the conditions are met). (iii) Inheritance tax: the lump sum, paid into a discretionary trust, is not part of the deceased’s estate. (iv) Lump sum allowance testing: for registered schemes, lump sums are tested against the LSDBA of £1,073,100 under Finance Act 2024.

Scope of cover

(i) Employer corporation tax: deductible. (ii) Employee P11D: no benefit in kind. (iii) Death benefit: free of IHT (subject to the trust’s status and behaviour). (iv) Death benefit LSDBA: applies for registered schemes; does not apply for EGLPs.

Practical example

A registered group life scheme provides 4× salary cover. An employee earning £80,000 dies in service; the £320,000 lump sum is below the LSDBA so is paid free of income tax. Employer’s premium during her employment was an allowable deduction; she suffered no P11D charge; the death benefit was paid to her discretionary trust beneficiaries free of IHT.

References

Finance Act 2004, Part 4 — https://www.legislation.gov.uk/ukpga/2004/12
Finance Act 2024 — https://www.legislation.gov.uk/ukpga/2024/3
Income Tax (Trading and Other Income) Act 2005, s.480 — https://www.legislation.gov.uk/ukpga/2005/5
Income Tax (Earnings and Pensions) Act 2003, s.307 — https://www.legislation.gov.uk/ukpga/2003/1/section/307
Inheritance Tax Act 1984 — https://www.legislation.gov.uk/ukpga/1984/51
Corporation Tax Act 2009 — https://www.legislation.gov.uk/ukpga/2009/4

This entry is part of the Apex Insurance Wiki. Last reviewed by Apex Insurance Brokers on 2026-06-10. Next review: 2026-12-10.

Apex Insurance Brokers Limited. Authorised and regulated by the Financial Conduct Authority, FRN 724952. Registered in England and Wales, Companies House 07014570. This entry provides general information about UK insurance concepts and is not regulated advice. Consult your insurance broker on your specific position.

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