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HMRC internal manual

International Manual

HM Revenue & Customs
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DT Applications and claims - Types of income: Pensions and Annuities

Permanent Health Insurance payments

In some cases an employer will take out an insurance policy that will pay benefits to employees who are unable to work.

Payments fall into two main categories

  • Relatively short-term payments that are made to someone who is still employed by the company and who is receiving sick pay.
  • Longer-term payments that are made to someone not entitled to a pension but whose employment has been terminated.

It is with this second category of payments that CAR Residency have an interest.

Where an employment is terminated due to sickness or disability and the employer has in place a policy that will make payments to the former employee (perhaps for life or until age 60 is reached), then it is likely that exemption from UK tax will be available under the terms of the general pension article in a Double Taxation Agreement (DTA).

As the terms of DTAs vary you will need to consider the specific terms of each DTA on a case by case basis. Cases of doubt or difficulty should be referred to Technical Advice Group.