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Is Tax Liable on Life Insurance Payouts in Ireland?

I was woken up by a phone call telling me I’ve committed tax fraud.

They must have had the wrong number ’cause I don’t pay taxes

That’s all I got folks.

I scoured the internet, and that is the best tax joke I could find.

Funny and Trump topical FTW

So what about the tax implications of a life insurance policy and all it entails?

Could the taxman hit your family with a massive bill and take a fat slice of that creamy life insurance pie you left for them?

In this guide, I’ll answer the questions that may be rattling around your ceann about life insurance tax rules in Ireland.

Let’s mosey on…

Do you have to pay tax on a life insurance payout in Ireland?


It depends on the relationship between the insured and the person who is getting the proceeds of the claim.

Let’s look at the case of JR and Sue-Ellen who had a life insurance policy in her name for a cool €10 million.


If JR was lucky enough to have married Sue-Ellen before she popped her clogs, then he won’t pay any tax.

Not Married:

However, if she didn’t put a ring on it, then in the eyes of Revenue, they are strangers, and he’s gonna be hit with a whopper tax bill on the life policy.

How much is life insurance taxed?

The proceeds of a life insurance policy are taxed at 33% less the current CAT threshold you can see below:

CAT Thresholds Ireland 2020

The above in plain English:

  • Children of the deceased don’t pay any tax assuming they receive less than €335,000 in their lifetime. Anything above this is taxed at a whopping 33%
  • brothers, sisters, nieces, nephews of the dead person 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 manage to get married, unlucky, he’s going to 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 here is that you should get married to avoid paying tax on your partner’s life insurance….that, and love of course. ?

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

Is life insurance tax deductible?

Personally paid life insurance policies are not tax-deductible, but you can get tax relief on Pension Term Assurance.

Also, 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.

Do you pay taxes on life insurance proceeds?

Proceeds = payout so see above for the explanation 🙂

Do you pay tax if you invest the payout of a life insurance policy?

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

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

rate of exit tax in ireland since 2001

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

Do you pay tax on a monthly income life insurance policy?

Similar to a lump sum payment from a life policy, the monthly income would be paid out tax-free to the deceased’s estate.

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

Is tax liable on a mortgage protection policy?

Again, it comes down to your marital status.

There is no tax liability between married couples/civil partners, so there are no tax implications on mortgage protection policies.

However, if you are buying as a cohabiting couple, there are some pitfalls you can avoid. Here’s a previous article on mortgage protection for cohabiting couples.

Over to you…

Do you have any further questions about the tax implications of life insurance, or are you looking for the right life cover for you and your family?

Call us today or fill out this questionnaire and we’ll be in touch asap with our free, no-obligation recommendation.

Nick | 05793 20836 | nick @ lion dot ie


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