Is Tax Liable on Life Insurance Payouts in Ireland?

Do You Pay Tax on Life Insurance in Ireland?

It depends on the relationship between the dead person and the person getting the moolah.

If you’re married, there is no tax liability.

Let’s look at the case of JR and Sue-Ellen.

Sue Ellen had a life insurance policy in her name for a cool €10 million.

a) Married:

If JR was lucky enough to marry Sue-Ellen before she popped her clogs, he wouldn’t pay any tax on the money he received.

b) Cohabiting:

However, if there were no wedding bells, then in the eyes of Revenue, they are strangers, and he will be hit with a whopping tax bill on the life policy.

How Much is Life Insurance Tax?

The proceeds of a life insurance policy are taxed at 33% less the current CAT threshold you can see below (still current in 2024)

The above in plain English:

• Children of the deceased don’t pay any tax, assuming they receive less than €335,000 from their parents in their lifetime. Anything above, Revenue will tax at 33%.
• The dead person’s brothers, sisters, nieces, and nephews can receive up to €32,500 tax-free but pay 33% tax on the balance.
• Everyone else gets €16,250 tax-free and pays 33% on the balance.

So if JR didn’t marry, he would have to South-fork out 33% tax on the value of the life insurance policy minus €16,250.

That’s a tax bill of 33% of (€10,000,000 – €16,750) = €329,447.25!

So, the takeaway is that you should get married for one sole reason: to avoid paying taxes on your spouse’s life insurance.

Why else would you get married??

I wrote a previous article that would be of interest if you’re not married and are considering life insurance.

Is Life Insurance Tax Deductible?

Premiums on standard-term life insurance policies are not tax-deductible.

But you can get tax relief on a special type of life insurance called Pension Term Assurance.

Also, if you’re lucky enough to be a company director and your company pays your life insurance premiums, the premiums may be a tax-deductible expense for the company.

Do You Pay Tax if You Invest the Proceeds?

Yes, any gains on the investment of the proceeds of a life insurance policy are taxable at 41%.

This exit tax here in Ireland has risen steadily since 2001:

And you thought having to pay 33% tax was harsh.

Do You Pay Tax on Monthly Income Benefits?

Similar to a lump sum payment from a life policy, the insurer will pay out proceeds on a monthly income life insurance policy tax-free.

However, if these monthly amounts were invested by the beneficiary, any growth would be taxed at a rate of 41%

Is Tax Liable on Mortgage Protection?

Again, it comes down to your marital status.

Remember, there is no tax liability between married couples or civil partners, so there are no tax implications for mortgage protection policies.

However, if you are buying as a cohabiting couple, there are some pitfalls to avoid.

Here’s a previous article on mortgage protection for cohabiting couples.

Over to you…

Please take this as a general guide to Ireland’s basic tax rules around life insurance.

So, if you have a specific query, I suggest you take legal and professional advice before doing anything stupid!

Thanks for reading

Nick

Editor’s Note: We first published this blog in 2020 and have updated it since.