Relevant Life Insurance Tax Benefits Explained: A Director’s Guide (2026/27)

For UK limited company directors, the relevant life insurance tax benefits are substantial and unambiguous. A higher-rate director paying a £100 monthly premium personally requires the company to generate £207.52 of gross income to fund it via dividend extraction (2026/27 rates: corporation tax 25%, dividend tax 35.75%). 

The same cover via a relevant life policy costs the company just £75 net after corporation tax relief – a company cash saving of £132.52 per month, or £39,756 across a 25-year policy.

Why Does the Payment Method Make Such a Big Difference to the Relevant Life Insurance Tax Benefits?

The tax saving on a relevant life policy comes entirely from how the premium is paid. When a director holds a personal life policy and pays the premium personally, the money has already been through the tax system twice. As a director, you typically withdraw funds from your company as dividends, meaning the income is subject to corporation tax at the company level and then dividend tax at the personal level before it reaches your bank account.

With a relevant life policy, the company pays the premium directly as a business expense under HMRC EIM15045. No income is drawn; no dividend tax is paid. The company claims corporation tax relief on the cost and the premium is settled. The full tax-efficiency of the relevant life route flows from this single structural difference.

Step-by-step: the true cost of funding a £100 personal premium as a higher-rate director (2026/27)

Step	Calculation (2026/27 rates)	Amount
Company earns gross income	Required to yield £100 net to director	£207.52
Less corporation tax at 25%	£207.52 × 25%	−£51.88
Post-tax profit available as dividend		£155.64
Less higher-rate dividend tax at 35.75%	£155.64 × 35.75%	−£55.64
Net income available to pay premium		£100.00

Higher-rate dividend tax 2026/27: 35.75%. Source: gov.uk/tax-on-dividends. Corporation tax main rate 2026/27: 25%. Source: gov.uk/corporation-tax-rates.

The Side-by-Side Tax Comparison: Relevant Life Insurance Tax Benefits vs Personal Life Insurance

	Personal life policy	Relevant life policy
Who pays the premium?	Director (from net income after dividend tax)	Company (as a business expense)
Corporation tax position	No relief — income already taxed before withdrawal	Full relief at 25% main rate (2026/27)
Dividend tax position	35.75% higher rate (2026/27)	Not applicable – no withdrawal needed
Benefit-in-kind charge?	No	No (confirmed under HMRC EIM15045)
Gross company income needed per £100 premium	£207.52	£100.00
Net cost to company per £100 premium	£207.52 (full gross income consumed)	£75.00 (after 25% CT relief)
Company cash saving per £100 premium per month	—	£132.52
25-year saving (£100/month premium)	—	£39,756

Tax year 2026/27. Higher-rate director assumed. Figures based on 25% corporation tax (main rate) and 35.75% dividend tax (higher rate). Saving shown is company gross income consumed for personal route vs net company cost for relevant life route.

How Does the Saving Change at Different Tax Rates?

Not every director pays the higher rate of dividend tax. The relevant life insurance tax benefits are still significant at the basic rate, but the numbers differ. Here is how the comparison looks across all three dividend tax brackets for 2026/27.

Tax position	Dividend tax rate (2026/27)	Gross company income needed per £100 premium (personal route)	Net cost via relevant life	Company cash saving per month
Basic-rate director	8.75%	£146.12	£75.00	£71.12
Higher-rate director	35.75%	£207.52	£75.00	£132.52
Additional-rate director	39.35%	£219.84	£75.00	£144.84

Dividend tax rates 2026/27: basic rate 8.75%, higher rate 35.75%, additional rate 39.35%. Source: gov.uk/tax-on-dividends. Corporation tax main rate 25%. Source: gov.uk/corporation-tax-rates. Figures are illustrative; actual tax position depends on individual circumstances. Gross income required = £100 / (0.75 × (1 − dividend tax rate)).

Does a Basic-Rate Director Still Benefit From a Relevant Life Policy?

Yes, the benefit-in-kind exemption and corporation tax relief apply equally regardless of the director’s marginal dividend tax rate. A basic-rate director saves around £71 per month per £100 of monthly premium compared to a personal policy, equating to over £21,000 across a 25-year policy. 

The saving is smaller than for higher or additional-rate taxpayers, but remains significant over the life of a policy. This directly rebuts the misconception that director life insurance tax saving is only worthwhile for higher earners.

Is the Payout Also Tax-Free?

Yes. When a relevant life policy pays out on the death of the life assured, the entire benefit is paid tax-free to the beneficiaries. The mechanism is the trust: every relevant life policy must be written under a discretionary trust. Because the policy sits inside the trust and not in the estate of the life assured, the payout does not form part of the taxable estate, and therefore inheritance tax does not apply. At the 2026/27 standard rate, that means avoiding a 40% IHT charge on amounts above the £325,000 nil-rate band.

What If The Policy Is Not In Trust?

If a relevant life policy is not written under a relevant life trust from inception, the death benefit could fall into the estate of the life assured, triggering inheritance tax and potentially removing the corporation tax relief on premiums. 

This is why writing the policy under a trust from day one is essential. All policies arranged through Executive Life are set up with a trust as standard.

Tax benefit	Detail	Impact
Corporation tax relief on premiums	25% relief at main rate (2026/27) under HMRC EIM15045	Net cost £75 per £100 premium
No income tax on premiums	Premium paid by company. Director draws no additional income	No income tax or NI applies
No dividend tax on premiums	No withdrawal needed to fund the premium	Saves up to 39.35% per £1 of premium (additional rate)
No benefit-in-kind charge	Confirmed under HMRC EIM15045	No P11D liability for the director
Tax-free payout	Trust keeps benefit outside the estate	No IHT on life insurance proceeds

Last reviewed: June 2026Next review: April 2027. Tax rates and thresholds are subject to change. This article will be updated following each HMRC Autumn Budget or Spring Statement where relevant thresholds change.

Executive Life is authorised and regulated by the Financial Conduct Authority (FCA 985058). View our FCA register entry.