Relevant Life Insurance: A Tax-Efficient Solution
Relevant Life Insurance offers a tax-efficient way for businesses to provide death-in-service benefits for employees, including directors. This policy provides significant tax savings for both the employer and the employee.
Understanding Relevant Life Insurance
Description
A tax-efficient life insurance policy provided by a business for the benefit of an individual employee or director’s family, functioning similarly to regular life insurance.
Function
Held in trust, the policy pays a lump sum to the employee's or director's beneficiaries if they die while employed.
Benefits
Businesses can receive up to 25% corporate tax relief on premiums, and employees incur no benefit-in-kind tax. Directors can save up to 50% on life insurance costs by having the company pay for the policy.
Advantages of Relevant Life Insurance
Tax Efficiency
Premiums are usually an allowable business expense, with no National Insurance contributions or benefit-in-kind charges for either the business or the employee.
Significant Savings
Depending on tax rates, individuals can save up to 66% compared to personal life insurance paid from post-tax income.
Attract and Retain Talent
A valuable employee benefit for businesses that cannot access group life insurance schemes.
How It Works
Setup
The employer takes out the policy on the life of an employee or director, with flexible options for continuation if the employee leaves. The policy is set up in a Relevant Life Plan Trust to ensure the proceeds are paid quickly and tax-free.
Generous Coverage
Offers substantial sums assured, subject to criteria, with the policy available up to the age of 75.
Tax-Free Benefits
The proceeds do not form part of the deceased’s estate, ensuring quicker access to funds for beneficiaries.
Case Example: Tax Savings
Scenario
Jack, a 40-year-old company director, compares personal life insurance and a Relevant Life Plan for £1 million coverage. Both have the same premiums, but the Relevant Life Plan offers substantial tax savings.
Personal Life Insurance Cost
£1,569.66 annually after tax and National Insurance contributions.
Relevant Life Plan Cost
£800 annually, saving Tom £769.66 per year, or 49%, compared to personal life insurance.
Setting Up Relevant Life Insurance
Consultation
Work with a specialist to customise the policy to your business needs.
Documentation
Necessary paperwork depends on your business structure (Limited Company, LLP, partnership, or sole trader).
Tax Considerations
Ensure the policy qualifies for favourable tax treatment by setting it up under a discretionary trust and adhering to specific criteria.
Download the essential guide for business owners and company directors
Who can take out the policy
Who benefits
Who pays for the policy
Who is eligible
