Can i get tax relief on my life insurance ?
An important factor to bear when considering the cost of life insurance is tax relief. Since 1853 successive governments have recognized the value of life insurance to individuals and the economy and have allowed two major concessions, which will be dealt with here since they normally affect life policies of every type.
The first is that each premium paid on a qualifying policy attracts tax relief. The method of granting this relief has been changed with effect from April 1979. Formerly the policyholder had to claim the relief from the tax authorities. From 1979 the policyholder pays premiums net of tax relief at the specified rate and the life insurance company reclaims the relief from Inland Revenue. The rate of tax relief is set by the government; for the fiscal year 1979 to 1980 it is 17.5 percent, though the rate may vary annually thereafter.
The tax relief is normally granted automatically on premiums totaling up to £1,500 p.a., regardless of the income of the policyholder. Those with higher incomes (over £9,000 p.a.) may obtain tax relief on premiums. Effectively, therefore, the policyholder receives a rebate from the tax authorities. The life office sets the premium it requires for a given policy - say at £100 p.a. But the premium the policyholder is required to pay is £82.50. The life office reclaims the balance of £17.50 from the Inland Revenue. The availability of this subsidy, amounting to over a sixth of each premium paid, is one major reason for the popularity of life insurance as a saving medium.
One essential consequence of the change in the rule is that husbands and wives who have designated to be taxed individually will now be able to obtain tax relief both on joint life policies and policies on each other’s lives, whereas formerly this was not allowed.
The other major indulgence is that the proceed of any life insurance policy that the Inland Revenue has certified as qualifying policy are free of income tax in the hands of the recipients, whether this is the being policyholder himself or his dependants.
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