The Business Owner’s Guide to Relevant Life Policies
The Business Owner’s Guide to Relevant Life Policies
Quick view benefits of Relevant Life Policies
- All premiums qualify for corporation tax relief.
- Savings in income tax as premiums paid by the business and not you personally.
- No benefit in kind charge.
- Your family still gets the benefit tax-free in the event of your death.
- Relevant life cover is transferable if you sell your business in the future.
Why we love Relevant Life Cover
Relevant Life insurance are possibly our most popular business life insurance product as they are one of the only HMRC approved expenses that are a total personal benefit to your and your family and have no benefit in kind charge. They offer both tax relief on the way in and on the way out.
As with regular life insurance, if the person covered dies, a lump sum is paid out are tax-free, for inheritance tax purposes, as long as the policy is left in a discretionary trust and the business can claim corporation tax relief on the value of the premiums, making it a favourite for business protection.
How long has relevant life cover been around?
Relevant life cover is nothing new and this insurance policy has been around since 2006. HMRC approved the policies as a business expense to help match the benefits offer by larger companies called death in service benefit. This allows smaller SME’s to receive the benefit of relevant life cover and the tax benefits that go with it.
What is Relevant Life Insurance?
Relevant life insurance is simply, life of another basis, life insurance contract for your family that is paid for by the business. The premiums are the same for both relevant life and personal cover but the main difference is how much more tax efficient relevant life cover is.
Even the insurers that offer the policies are the same and it’s not uncommon for us to cancel a personal policy for a client with the same insurer that the new relevant life policy is with.
You can choose level cover or increasing and there is no maximum amount of cover. (note you cannot use relevant life cover as a sole trader).
Tax Implications of Relevant Life Insurance
One of the most compelling aspects of a relevant life policy is its favourable tax treatment. The premiums paid are not treated as a benefit in kind, meaning there’s no further tax for the person covered. Furthermore, these policies are generally not subject to national insurance contributions and can be an allowable business expense, leading to potential corporation tax relief.
Corporation Tax and Relevant Life Policies
For businesses, the premiums paid towards relevant life cover can often be written off as a business expense. This makes relevant life cover a tax-efficient form of life insurance for the employee or director and the company. Relevant life cover is not classed as tax avoidance and you save money if you are a basic rate taxpayer or even higher and additional rate.
Inheritance Tax and Relevant Life Plans
A key benefit of relevant life plans is that the lump sum benefit payable is usually outside the deceased’s estate for tax purposes. This means the beneficiaries can receive a significant sum without the burden of inheritance tax, subject to the policy written in a relevant life trust or discretionary trust.
Comparison with Personal Schemes and Other Benefits
Personal life vs Relevant Life Policy
To start with both polices are priced the same way and there is no additional premium added because the policy is a relevant life policy. The main difference is the tax relief. A personal policy of £100 a month will cost a further £48 in income tax and £49 in corporation tax for the funds to arrive in your personal account to pay the premium.
If a relevant life plan is used, the business gets £25 tax relief and there are no further taxes to pay making the just £75 cost to the business. The saving over the life of a 20 year policy would be £29,400.
Although the policy is part of an employee’s remuneration so benefit in kind is charged.
If you decide to sell your business in the future you don’t want to have to cancel your policy as it would be much more expensive in later life to replace the cover, if you could at all. A relevant life plan is transferable to either another business or it can even be converted into a personal policy so the policy can move with you.
This makes relevant life insurance better than a group life scheme as a group life scheme is not transferable and would be lost if you moved jobs. There is no maximum limits and the policy has no surrender value.
Terminal Illness Cover and Life Expectancy
Many relevant life plan’s include terminal illness cover, offering peace of mind that, if the person covered is diagnosed with a terminal illness, the policy will pay out. This is particularly important considering life expectancy variations and the unpredictability of health issues. Terminal illness cover ensures that support is available when it’s most needed.
Relevant Life Plan Trust and Tax Benefits
Setting up a relevant life policy in a relevant life plan trust can enhance its tax efficiency. This setup ensures that the death-in-service benefits are paid directly to the beneficiaries rather than through the deceased’s estate, potentially avoiding further tax. Additionally, the trust structure helps in ensuring that the benefits are managed efficiently and by the person covered’s wishes.
Pension and Relevant Life Policies
Relevant life cover is not governed by pension legislation, meaning they don’t count towards the lifetime allowance of a registered pension scheme. This separation from pension caps makes them attractive for high earners who might already be close to their pension lifetime allowance. Note that as of 2024, pension lifetime allowance is no longer part of pensions legislation.
Relevant life insurance offers a unique and cost efficient combination of benefits for employers and employees. From tax efficiency to flexible cover options and the ability to cater to different business sizes and structures, this insurance policy presents a compelling option for those looking to provide or receive life cover.
They stand out as a cost-effective solution, balancing the business’s needs with the employees’ welfare for business’s that are not big enough to have a group scheme in please.
Frequently Asked Questions
Are there restrictions on relevant life insurance?
Relevant life insurance can only be used by UK residents who are employed or own a UK registered limited company such as equity partners. Limited liability partnership and sole traders cannot use relevant life cover. Relevant life over is often offered as employee benefits as the employers chose to provide life cover can be attractive to employees.
The employee’s age and employee’s salary may dictate the benefit and any lump sums their potential beneficiaries and employee’s family will receive.
Which insures offer relevant life policies?
Many of the UK’s leading insurers offer relevant life insurance such as L&G, Zurich, LV and several others. To find the best quote request a equation from us today and we will show you premiums from every insurer.