Life Insurance Tax can vary dependent on which country it is that the Life Insurance Policy is taken out in. Below is a brief guide to Life Insurance Tax in the USA and the UK. What you must remember is that times and tax change so for up to date information it is best to speak to a Financial or Legal Adviser. The below is a brief outline in relation to simple Life term Insurance tax and is not in any way advice.
Life Insurance Tax in the UK
Premiums that are paid on a Life Insurance Policy are not usually allowable against income or corporation tax, however policies which are qualifying for tax purposes that were issued prior to 14 March 1984 do still attract Life Assurance Premium Relief at 15%, the net figure is what the customer pays.Non-investment life policies are usually not subject to either income tax or capital gains tax upon a claim. If the policy includes an investment element for example an endowment policy then the tax treatment is determined by the qualifying status of the policy.
The qualifying status is determined at the outset of the policy if the contract meets certain criteria. Essentially, long term contracts plans that run for more than 10 years) tend to be qualifying policies and the proceeds are free from income and capital gains tax.
The proceeds of a life policy will be included in the estate for inheritance tax purposes, except that policies which are written in trust may fall outside of the estate. Trust law and taxation of trusts can be complicated, so any individual intending to use trusts for tax planning would usually seek professional advice from an Financial or Legal Adviser.
Life Insurance Tax in the USA
Premiums paid by the policy owner are usually not deductible for federal and state income tax purposes.Monies paid by the insurer following the death of the insured are not included in gross income for federal and state income tax purposes but if the proceeds are included in the 'estate' of the dead life insured, it is likely they will be subject to federal and state estate inheritance tax.
The tax ramifications of life insurance are complex. The policy owner would be well advised to carefully consider them. As always, the US Congress or the state legislatures can change the tax laws at any time.
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