asked Her Majesty's Government:Under what circumstances benefits under long-term care insurance policies are taxable and under what circumstances they are tax-free. [HL488]
Lord McIntosh of Haringey
Benefits payable under long-term care insurance originally taken out to meet the costs of long-term care at some time in the future are normally exempt from tax. Benefits payable under long-term care insurance taken out to meet the costs when the need for care has already arisen are outside the scope of this exemption. However, most policies of this type require the insurance company to provide care directly, through an arrangement with a care provider. Since in these circumstances the benefits cannot be paid in cash, they are not taxable.Details of these tax rules are set out in the Inland Revenue leaflet, IR 153, copies of which are in the Library.