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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.
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