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Original poster

Tax returns - life insurance payout

17 replies

QuiltedBear · 31/12/2022 15:57

Last year I received a life insurance payout. I’m now trying to fill in my tax return and I cannot work out where to put it.

The form says to include all income so I assume I’m meant to include this. There is a section on the form for “gains from life insurance policies, capital redemption policies and life annuity contracts”. This seems like the obvious place. But life insurance gains seem to mean something specific that is liable for tax, whereas most life insurance payouts are exempt. The form also says that I would have received a “chargeable event” certificate if a gain has been made, but I don’t remember receiving any certificate - just a letter and a bank transfer.

Does anybody have any experience of this? If the policy is tax exempt does that mean I don’t have to mention it at all?

Any advice gratefully received! 🙂

OP posts:
topcat2014 · 31/12/2022 16:03

When you say payout, do you mean following a death?

In which case that is not taxable.

Original poster
QuiltedBear · 31/12/2022 16:16

@topcat2014 - yes, my brother died in late 2021 and had a life insurance policy through work. I was the beneficiary.

If it’s not taxable does that mean I don’t need to mention it on the self assessment tax return?

I’ve tried googling but all the advice I’ve found is for people who want to insure their own life.

OP posts:
Original poster
QuiltedBear · 31/12/2022 16:19

Thanks @Fluffygoon - I had seen that but found it rather impenetrable. It focuses on policies that “give rise to a chargeable event gain” but doesn’t say what to do in the other event. A simple sentence saying “no need to include on tax return” would be super helpful!

OP posts:
Logistria · 31/12/2022 16:26

This is probably not the ideal timing to realise you need professional advice but I suspect you do because this is a really complex area with a weird calculation to be done. It's called a gain but gets taxed as income.

Whether a life policy is taxable or not depends on if it's qualifying or non-qualifying.

Logistria · 31/12/2022 16:36

You should be able to check with the insurer about the chargeable event gain certificate. It may have been part of the letter they sent you.

The section of the return you've identified is where it would go.

Fluffygoon · 31/12/2022 16:36

Sorry for your loss OP- I would have thought the policy would have been included in your brother’s estate and any tax due would have been calculated at that point. Once probate’s granted you would the have been paid sums due. If a solicitor dealt with his affairs you could check with them first or you could phone HMRC SA helpline.

Original poster
QuiltedBear · 31/12/2022 16:41

The information I was given at the time was that it was tax free. So I didn’t think it would be an issue. But now that I’ve come to the form I can’t understand where I’m supposed to include it (or even if I’m supposed to include it at all).

As it’s a long weekend I thought I’d have more luck on Mumsnet. Thanks for all the input everyone!

OP posts:
ClangingBell · 31/12/2022 16:42

Ha, spot the accountants trying to make things complicated. Basically, no you don’t need to put it on your tax return. If your brother reached the IHT threshold tax would have been paid at that point. You don’t need to pay tax on it as income.

Original poster
QuiltedBear · 31/12/2022 16:42

Thank you @Fluffygoon - it was a shock and I haven’t kept on top of the documents etc from that period as well as I should have.

OP posts:
heidbuttsupper · 31/12/2022 16:45

@QuiltedBear I received a life insurance payout this year also, it is not taxable

Oblomov22 · 31/12/2022 16:50

I agree. I am not a qualified accountant, but have done many tax returns and I agree with 2 x pp's. My gut instinct was that it was non taxable and does not need it be included.

topcat2014 · 31/12/2022 17:00

If regular premiums were paid (which is likely to be the case with work policies) then this is likely to be a qualifying policy, giving rise to non taxable payouts.

There may have been inheritance tax effects but the executors should have dealt with that.

Pointing towards no need to put on tax return.

Original poster
QuiltedBear · 31/12/2022 17:01

Thank you all!

I have spoken with someone in real life and they say non- taxable income doesn’t need to go on the form. That’s why there’s no section for lottery wins either.

As usual I was making things more complicated for myself than they needed to be. 🙃

OP posts:
Onnabugeisha · 31/12/2022 17:03

non-taxable income doesn’t go on your self-assessment form at all
you just leave it off

Sunsetintheeast · 01/01/2023 15:39

@QuiltedBear it has nothing to do with any of the ‘gains’ on life insurance policies, nothing to do with periods of payment.

It is a pure life insurance policy and paid by the Trustees due to your DB nomination. It is 100% totally tax free. It does not need to be reported.

It is also outside of his estate (for those suggesting it is executors responsibility) - that’s the whole point of the nomination that it bypasses his estate.

sorry for your loss.

Original poster
QuiltedBear · 01/01/2023 15:59

@Sunsetintheeast - thank you, that’s very helpful.

OP posts:
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