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TaxRobin
TaxRobin, Tax Consultant
Category: Tax
Satisfied Customers: 15716
Experience:  International tax
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I have been long term sick for the past two years and have

Resolved Question:

I have been long term sick for the past two years and have been receiving a reduced salary 75% by my employers insurance scheme via UNUM. UNUM have made a one off
payment offer of £147,500 to finalise any further payments and my company will if I accept terminate my employment. My HR department are telling me that this can be paid
tax free but I am not sure this is true. I would not want to accept and be given the money
tax free only to find out at the end of this tax year I owe HMRC a huge amount of tax.

I hope you can clarify the issue for me.
Submitted: 3 years ago.
Category: Tax
Expert:  TaxRobin replied 3 years ago.
Hello,
There is no tax to pay on this sort of lump sum unless:

benefits are paid under an employer's or former employer's scheme and you did not pay the premiums, or pay tax on the premiums, that relate to your benefits, or
the policy would have paid out a sum on death, or is a life annuity or a capital redemption policy.

If you paid a proportion of the premiums that relate to you under your employer's scheme, the same proportion of any benefits which you receive will be tax free.
If your employer paid the insurance premiums but you paid tax on the cost, your benefits will be exempt because, effectively, you paid the premiums out of your taxed income.
If your HR department is telling you that this can be paid tax free, then I am assuming they know how the premiums were paid.
You may wish to go over this with them specifically before you accept.
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