Immediate and Deferred Care Plans

Taxation of Benefit Payments

Taxation of income payments

Any income paid from our care plans to a registered care provider in respect of care for the annuitant can be made tax-free. To qualify, the care provider must be registered with one of the following:

• Care Quality Commission in England
• Care Inspectorate for Wales (CIW) in Wales
• The Care Inspectorate in Scotland
• Regulation and Quality Improvement Authority in Northern Ireland 

Payments to Local Authorities in respect of care are also tax-free.

Where any income is paid directly to the annuitant, a non-registered care provider or a third party, the income will be subject to tax in line with treatment for Purchased Life Annuities.　

In this case, income is split into a capital and an interest element. The capital element is paid tax-free and the interest element is subject to income tax at the savings rate. We are required to deduct tax at the basic rate for savings (currently 20%) from the interest element.

The capital content is determined in line with mortality tables specified by legislation based on the customer’s circumstances at the start of the policy.

Before income can be paid on this basis, the customer will need to complete HMRC form PLA6. Non taxpayers can also complete HMRC form R89, in which case we will not deduct any tax.

This income is not taxed through the PAYE system. The customer remains responsible for ensuring that the correct amount of tax is paid and may have to pay more or claim a partial repayment.

Taxation of death benefits 

Under current legislation, we will not deduct any tax from any lump-sum death benefit payable from our care plans.

However, it may be included in the estate for inheritance tax purposes, even where it has been assigned to a trust.