Do I pay tax on income protection payout?

moggymutt

I have had to retire due to ill health, but luckily had taken (many years ago) out a policy that would pay out monthly to top up my income to about two thirds of my previously salary if I became unable to work in any capacity. Will I be liable to pay tax on this monthly payment from the insurers?

chanz4

yes as its income

anamenottaken

moggymutt wrote: »

I have had to retire due to ill health, but luckily had taken (many years ago) out a policy that would pay out monthly to top up my income to about two thirds of my previously salary if I became unable to work in any capacity. Will I be liable to pay tax on this monthly payment from the insurers?

Income protection insurance payments are not subject to income tax.

(I assume you took out the policy yourself and it wasn't provided by your employer.)

For fuller answer, read http://www.hmrc.gov.uk/individuals/taxexemption.htm#11

dunstonh

Some income protections are subject to tax. Some are not.

Who paid the premiums for the income protection?

ACG

If its personal protection probably not.

If you paid the premiums not your employer then its most likely tax free... just like if you had a payout from home or car insurance (best example i could think of).

moggymutt

Thanks for the replies,. It was me who took out the policy, nothing at all to do with my employers. I actually thought it was a sort of critical illness policy- only when I had to retire, and was trying to find my mortgage protection policy, did I stumble across it, and spot that it actually covered for any medical conditions that permanently prevented work in any capacity. So I very nearly missed out on claiming.

magpiecottage

The rules have changed from time to time but we seem to have now settled on personal cover, paid for out of post tax income (and with no tax relief on the premiums) will have benefits paid free of Income Tax.

Do be aware, though, that this does not necessarily mean that it is not considered in calculating entitlement to State Benefits.

moggymutt

Thanks, magpie cottage, that's a worry off my mind because I get very confused sorting things like forms and tax out, and this will make life simpler (plus me being better off). Thanks again to everybody- much appreciated.