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If you're a company director or shareholder and you have life insurance, you could be paying more tax than you need to. Relevant Life Policies are a way of providing death in service benefits on an individual basis, no matter how small your business is. They are not classed as a 'benefit in kind' meaning tax is not payable on the premiums.
What is a Relevant Life Plan?
A Relevant Life Plan is a term assurance plan available to employers to provide an individual death in service benefit for an employee. It's designed to pay a lump sum if the person covered dies or is diagnosed with a terminal illness, whilst employed during the term. A Relevant Life Plan is paid for by the employer.
What are the benefits of Relevant Life Policies?
- The company pays the premium, which are not normally assailable to income tax on the employee as a benefit in kind. This can result in significant savings, particularly for a higher-rate taxpayer.
- Unlike a registered group scheme, the benefit will not form part of the employee's annual or lifetime pension allowance.
Who is it aimed at?
- Employers looking to provide 'death in service' benefits, but with too few employees to set up a group scheme.
- Directors wishing to provide their own individual ‘death in service’ benefits without taking out a scheme on all employees.
- High earning individuals, such as directors, where ‘death in service’ does not form part of their ‘lifetime allowance’ (£1.5 million 2012/13).
What makes it cost effective?
Relevant Life Plans are similar to most other types of life cover except they aim to provide a tax efficient benefit provided by an employer for an employee.
Who are relevant life policies suitable for?
- Company Directors that would like their company to pay for their life cover and offset the premiums against corporation tax.
- Small businesses that do not have enough eligible employees to warrant a group life scheme.
- Directors of small limited companies that may be thinking of putting Key Person cover in place so that their company can pay the premiums on their cover.
- High-earning employees or directors who have substantial pension funds and do not want their benefits to form part of their lifetime allowance.
- They are not suitable for the self-employed or equity partners, although their employed staff could be covered.
JonSimon Financial Advice Ltd is an appointed representative of Intrinsic Financial Planning Limited and Intrinsic Mortgage Planning Limited, which are authorised and regulated by the Financial Conduct Authority.