Relevant Life Insurance HMRC: Navigating HMRC Guidelines and Tax Benefits

Relevant life insurance has become popular for company directors and employees, particularly for its tax-efficient benefits. Understanding how it interacts with HMRC regulations is crucial for anyone considering this type of life cover. This comprehensive guide aims to demystify relevant life insurance, focusing on its tax implications and benefits under HMRC’s guidelines.

What is Relevant Life Insurance?

Relevant life insurance is a type of life insurance policy specifically designed for company directors and employees. It offers life cover paid for by the company, providing a tax-efficient way of offering death-in-service benefits. Unlike personal life insurance policies, the employer sets relevant life insurance and offers unique tax advantages.

Tax Efficiency of Relevant Life Insurance

One of the most significant aspects of relevant life insurance is its tax efficiency. The premiums paid by the company are not treated as a benefit in kind, meaning they are tax deductible for the company and do not result in an additional tax charge for the employee. This favourable tax treatment extends to inheritance tax, corporation tax, and national insurance contributions.

Corporation Tax and National Insurance Contributions

When a company pays for relevant life insurance, the premiums are usually considered an allowable business expense. This can lead to corporation tax relief for the business. Additionally, these premiums do not typically pay national insurance contributions, making them a cost-effective option for the business and the employee.

Income Tax Benefits

Employees benefit from relevant life insurance as the premiums paid by the employer do not count as a taxable benefit. Unlike some personal life insurance policies, employees do not have to pay income tax on the premiums.

Inheritance Tax and Relevant Life Policies

A key advantage of a relevant life policy is its treatment regarding inheritance tax. The payout from a relevant life policy is generally not considered part of the deceased’s estate for inheritance tax purposes, when written in trust. This ensures that the lump sum benefit goes directly to the beneficiaries, potentially free from inheritance tax.

Relevant Life Cover vs Personal Life Insurance Policy

Comparing relevant life cover with a personal life insurance policy highlights several differences, particularly in tax benefits and who pays the premiums. The employer pays for a relevant life cover and offers tax relief benefits. In contrast, a personal life insurance policy is paid for by the individual from post-tax income and does not offer the same tax advantages.

Corporation Tax Relief and Limited Liability Partnerships

Limited liability partnerships and limited companies can benefit from corporation tax relief through relevant life insurance policies. The premiums paid are generally deductible as a business expense, reducing corporation tax liability.

Relevant Life insurance HMRC –  Plans for Sole Traders and Company Directors

Sole traders and company directors can also benefit from relevant life plans. While sole traders cannot remove a relevant life policy on themselves, they can set it up for their employees. Company directors, especially those of limited companies, often find relevant life insurance attractive due to the tax benefits and level of cover it provides.

Relevant life insurance offers a tax-efficient way for employers to provide life cover to their employees, including company directors. Understanding the tax implications, particularly about HMRC regulations and benefits like corporation tax relief and inheritance tax advantages, is key.

Setting Up a Relevant Life Insurance Policy: A Step-by-Step Guide

Choosing the Right Relevant Life Plan

Selecting the appropriate relevant life plan is a critical decision for businesses. It’s important to consider factors like the amount of cover needed and the specific terms of the policy. A relevant life insurance policy differs from standard life insurance in that it should align with the specific needs of the business and the employee. Consulting with a financial adviser can provide valuable insights into the most suitable options.

The Benefits of a Relevant Life Insurance Policy

A relevant life insurance policy offers multiple benefits, especially regarding tax efficiency. Employers’ premiums paid for relevant life insurance are typically considered a tax-deductible business expense. This reduces the overall tax burden and provides valuable life cover for employees without incurring additional national insurance contributions.

Tax Efficiency and Capital Gains Tax

Relevant life plans are highly tax efficient. Unlike other investments or savings, the payout from a relevant life insurance policy is not subject to capital gains tax. This tax efficiency extends to both the employer and the employee, making it a beneficial option for providing life cover.

Impact on Lifetime Pension Allowance

One of the significant advantages of a relevant life policy is its treatment about the lifetime pension allowance. The benefits paid from a relevant life insurance policy do not count towards the pension lifetime allowance, making it an attractive option for high earners close to their allowance.

Setting Up a Relevant Life Plan

The process of setting up a relevant life plan involves several steps:

1. Assessment of Needs: Determine the level of cover required for the employees, considering factors like salary and life expectancy.
2. Selection of Provider: Choose an insurance provider that offers relevant life plans tailored to your business needs.
3. Policy Application: Complete the application process, which may involve health assessments for the covered employees.
4. Policy Implementation: Once approved, implement the policy as part of your employee benefits package.
5. Ongoing Review: Regularly review the policy to ensure it continues to meet the needs of both the business and the employees.

The Role of Financial Advisers

A financial adviser can be key in setting up a relevant life insurance policy. They can provide professional advice on the most suitable plans, help with the application process, and ensure that the policy remains compliant with changing regulations and tax laws.

Setting up a relevant life insurance policy requires careful consideration of various factors including tax implications, the impact on lifetime pension allowance, and the specific needs of the business and employees. With the help of a financial adviser, businesses can navigate the process efficiently, ensuring they choose the right relevant life plan that offers maximum benefits for both the employer and the employees.

Frequently Asked Questions

Is relevant life insurance a taxable benefit?

No, relevant life insurance is not considered a taxable benefit for the employee. The premiums are paid by the employer and do not count as a benefit in kind, thus the employee does not have to pay income tax or national insurance contributions on them.

Is life assurance a taxable benefit HMRC?

Life assurance can be a taxable benefit if it’s a personal policy, but if it’s a relevant life policy paid for by the employer, it is not considered a taxable benefit by HMRC. For relevant life policies, neither the employer nor the employee typically faces tax liabilities on the premiums paid or the benefits received.

Which insurers offer relevant life insurance?

Many of the major insurers offer policies such as L&G, Aviva, Zurich and others. The find the best quotes contact our team and we are happy to help

What is relevant life policy?

A relevant life policy is a type of life insurance arranged by an employer for an employee, offering a tax-efficient benefit with a lump sum paid to the employee’s beneficiaries in the event of their death. It is distinct from personal life insurance as it offers tax benefits for both the employer and the employee.

What is the difference between relevant life insurance and shareholder protection?

Relevant life insurance provides a death-in-service benefit to an employee, paid for by the employer, with the payout going to the employee’s beneficiaries, often offering tax benefits. Shareholder protection, on the other hand, is designed to protect a business in the event of a shareholder’s death, enabling the remaining shareholders to purchase the deceased’s share, and doesn’t typically offer the same tax advantages as relevant life insurance.