Corporation tax relief on Life Insurance – How it works?

Let’s face it – Corporation Tax is that pain that no business enjoys.  We take enormous risks to create jobs and strengthen the economy, then are taxed at 25% for the privilege.

Finding legitimate ways to reduce Corporation Tax is essential for an SME, which is why I want to highlight one of the most overlooked ways to do so, while also providing a personal benefit for you and your family.

The secret lies in a topic so boring, that most people often overlook it –  life insurance!

The Relevant Life Insurance Secret

If you already have life insurance and are also a business owner, you should be paying for your cover as a business expense. But, it needs to be the correct type of policy to qualify for the tax relief.

The policy I am talking about is called ‘Relevant Life Insurance’ and is a specific policy designed for small businesses owners in the UK. It’s designed to match a ‘Death in Service’ benefit that have received if you were employed, and it levels-up the benefit for smaller business owners like us.

If you have a Relevant Life Policy, your business pays the monthly premiums. At the end of the financial year, your accountant can treat these payments as a qualifying business expense. This reduces your taxable profit, meaning you pay less in corporation tax.

Compared to a personal policy

Compared with paying for a policy personally from taxed income, the savings can be substantial. Many of our clients save tens of thousands of pounds in tax over the lifetime of their policy, with higher-rate taxpayers typically seeing savings of around 64%.

Even though the company owns the policy, it still pays out tax-free to your family, in the event of your death, in the same way that a personal policy does.

Policy conversion options

You can’t convert an existing personal policy, but we can arrange a Relevant Life Policy for you instead. Once your new cover is in place, you can cancel your current policy and start benefiting from corporation tax savings.

The result is that you have the essential life insurance your family needs, all paid by the business, that reduces the corporation tax you pay each year. As many of our clients often say, it’s a no-brainer.

Reference: https://executive-life.co.uk/corporation-tax-and-life-insurance-how-it-works/

Written by

Alex Ogden DipFA | Director | Executive Life

Alex Ogden DipFA holds the Level 4 Diploma for Financial Advisers (DipFA) awarded by the London Institute of Banking & Finance (LIBF), the FCA's benchmark qualification for retail investment advisers. He is authorised by the FCA, Ref: AJO01072. View the FCA register entry.

Tax rates and thresholds are subject to change.