A tax on your life cover that nobody deducts and nobody mentions

Figures relate to tax year 2025-26 (UK) · 2025 (US)

You pay a monthly premium to a British insurer for life cover, or your company insures its office with a British broker. The direct debit leaves and nothing else happens.

America charges a federal excise tax on premiums paid to foreign insurers, and it is reported quarterly rather than on your annual return. Form 720 is where it goes, and most people who owe it have never heard of it.

Key takeaways

• Form 720 collects a tax on premiums paid to insurers outside America.
• The charge is an excise tax, not income tax, and it sits on a separate return.
• Life and annuity policies attract a different rate from casualty cover.
• The tax treaty can remove the charge where the insurer qualifies.
• It is filed quarterly, not annually with your personal return.
• Business policies catch companies more often than individuals.

What is Form 720?

It is the quarterly federal excise tax return, covering a long list of unrelated charges from fuel to air travel. One of those lines is the tax on insurance premiums paid to foreign insurers. Per IRS guidance, it is filed for each quarter in which a liability arises.

Form 720 has nothing to do with your income tax return.

So a perfectly prepared personal return can sit alongside a missing excise filing.

Who does the charge fall on?

On the person who paid the premium, where that person is American and the insurer is foreign. Form 720 can reach an individual buying cover and a business insuring its risks abroad. The rule looks at who paid, not at who the broker was.

A British insurer with an American subsidiary may or may not be foreign for this purpose.

So the question is where the underwriter sits, not where you live.

Check the legal entity on the schedule rather than the brand on the letterhead.

What rate applies?

Different categories carry different rates. Life insurance and annuity contracts sit at a lower rate than casualty cover and indemnity bonds. Reinsurance has its own figure again. Each rate is a small percentage of the premium rather than of any benefit.

Small percentages of a large commercial premium still reach real money.

But check the category before applying a rate. Miscategorising a business policy as life cover understates the charge.

For an individual with modest life cover the annual figure is usually tiny.

A worked example

The figures below are illustrative and use round numbers to show the mechanics.

Sarah, an American in London, pays £600 a year for life cover with a British insurer. The excise charge on that premium is a few pounds a year.

Her employer, an American company with a British branch, insures its premises through a British broker for £40,000 a year. The charge there runs to hundreds of pounds annually and the filing obligation is quarterly.

Same rule, two very different scales. The compliance cost sits with the business rather than with Sarah.

Does the treaty remove it?

It can, and this is the most useful point in the whole area. The tax treaty exempts premiums paid to a qualifying British insurer in many cases, provided the insurer meets the conditions and does not reinsure the risk with a party outside the agreement.

The exemption is not automatic and depends on the insurer rather than on you.

If the insurer qualifies, the charge simply does not arise.

Our guide to the US-UK tax treaty covers the structure.

Which policies are affected

How does the exemption work in practice?

The insurer either qualifies or it does not, and you need evidence either way. Many British insurers hold a closing agreement with the American authorities. A broker can usually tell you whether one covers your policy.

Ask in writing and keep the answer with your records.

Without evidence, the safer assumption is that the charge applies.

When is it due?

Quarterly, about a month after each quarter ends. You file only for quarters in which you actually paid premiums. So an annual premium produces a single Form 720 rather than four, which surprises people expecting a year-round job.

Monthly direct debits produce a liability in every quarter.

Also note that a quarter with no premium needs no return at all.

So the payment pattern drives the filing pattern.

What happens if you never filed?

Penalties and interest can apply to each missed quarter. For an individual the amounts are often small. Businesses face a larger exposure, so the position is usually worth correcting before anyone asks.

Where the treaty exemption applied all along, there may be no liability to correct.

Establish that first. It can turn a compliance problem into a paperwork exercise.

Does it apply to an offshore bond?

Investment bonds sit in a different part of the rules and bring their own American problems, which are usually far larger than any excise charge. The classification of the product decides which set of rules you are in.

Our guide to UK investment bonds and US tax covers that ground.

When in doubt, ask what the product actually is before asking how it is taxed.

Do not assume a wrapper labelled as insurance is insurance for these purposes.

What about employer-provided cover?

The charge follows whoever paid the premium, so cover provided by a British employer generally sits with that employer rather than with you. An American employer insuring British staff through a British policy is a different matter.

Group schemes rarely produce a personal filing obligation.

Our guide to benefits in kind and US tax covers the income tax side of employer cover.

Does it apply to health or travel cover?

It can. A standalone travel policy bought abroad, or private medical cover from a British insurer, both sit in the same family. The amounts are usually small, so people rarely notice, but the rule does not carve them out.

Cover bundled with a bank account is easy to miss entirely.

Check the underwriter on the policy documents rather than the bank name.

What if the insurer reinsures the risk?

That can break the exemption. Where a qualifying insurer passes the risk on to a reinsurer outside the agreement, the relief may fall away on that layer, and you will rarely see any of this from the policy documents alone.

You will rarely see this from the policy alone.

It is another reason to get the insurer's written position rather than guessing.

Who files it, you or the insurer?

You do. The charge falls on the person paying the premium, so the insurer has no filing role and will not collect it for you. Nothing on your statement will ever mention it.

That is precisely why it goes unnoticed for years.

So treat it as your own annual check, not the broker job.

Nobody in the chain has a reason to raise it.

How to check your position

1. List every insurance policy you or your business pays for.
2. Identify the legal entity underwriting each one, not the brand.
3. Separate policies underwritten in America from those underwritten abroad.
4. Ask each foreign insurer whether they hold a closing agreement.
5. Work out the premiums actually paid in each calendar quarter.
6. Apply the right rate to each category where no exemption applies.
7. File for the quarters with a liability and keep the evidence for the rest.

Is it worth the effort for small amounts?

For an individual with one modest policy, the tax itself is trivial and the filing cost exceeds it. Most advisers focus on establishing the exemption once, documenting it, and moving on rather than filing for a few pounds each quarter.

Businesses with meaningful premiums are in a different position entirely.

Still, document the conclusion. An undocumented decision looks like an oversight later.

Size the exposure before deciding how much process it deserves.

Who actually gets caught by this?

American companies with British operations, more than individuals. A business insuring property, liability or professional risk abroad pays premiums large enough to matter. It also files enough returns for somebody to spot the gap.

We see it surface most often during a diligence exercise.

By then the fix is urgent rather than routine.

Does it interact with your income tax?

Not directly. Form 720 is a separate charge on a separate return. Paying it gives you no deduction or credit on your income tax filing. A business may simply treat it as a cost of the insurance.

It also has nothing to do with the British insurance premium tax the insurer charges you.

Two different taxes on the same premium, collected by two different countries.

Does a captive insurer change things?

Considerably. Where a group insures its own risks through a captive vehicle based offshore, the premiums paid to that captive can fall squarely inside the charge, and the treaty exemption rarely helps because the captive is not a qualifying insurer.

So captive arrangements need pricing with the excise charge included.

Price it into the captive review rather than discovering it afterwards.

Groups that set one up for commercial reasons often miss this entirely.

What records should you keep?

The policy schedule showing the underwriting entity, the premium payment dates and amounts, and any written confirmation of the insurer position on the treaty. Keep them together per policy year.

Renewal is the natural moment to refresh the confirmation.

Insurers change underwriting entities more often than clients notice.

Is Form 720 needed for a dormant company?

Only if it paid premiums during the quarter. A dormant company with no insurance at all owes nothing here, and filing an empty return every quarter simply creates work that nobody needs and nobody reads.

But a dormant company often keeps a small liability policy running.

So check what the direct debits actually cover before deciding.

Then file for those quarters alone.

Mistakes and penalties we see with Form 720

The first is never knowing Form 720 exists. So far it is the least publicised obligation we deal with.

The second is assuming the treaty exemption applies without asking the insurer.

The third is looking at the brand rather than the underwriting entity.

The fourth is filing every quarter when only one carried a premium payment.

How US UK Tax Accountants helps

We go through the policy schedules, identify which underwriters sit outside America, and establish whether the treaty exemption is available for each. Then we file only for the quarters that genuinely carry a liability.

For businesses we set up a check that runs alongside the annual insurance renewal. Our US federal return service covers the wider filings.

If you pay premiums to a British insurer and file in America, get in touch. Establishing the exemption once is far cheaper than discovering the charge during a sale.

Last reviewed 30 September 2026. This article is general information and not personal tax advice. Every policy turns on its own facts, so take advice on yours before filing.