Single Director Company

Using a limited company, even as a traditional 'one-man band' business, is common, as it is much more tax efficient to withdraw income as salary and dividends, rather than just all PAYE.

Another advantage is access to products available only to limited company owners, such as relevant life and executive income protection.

Benefits made simple

• Save 64% on your life insurance by using relevant life instead of a personal policy.
• Reduce tax further by paying for executive income protection as a business expense.
• Take out private medical insurance in the form of 'business health insurance' that is paid for by your business.

Tax Saving

One reason you may have chosen a limited company structure is that it is more tax efficient. You can control the level of income you take and who it is paid to, as well as a wider range of expenses you can pay for as a business expense. But time and time again, we speak to company directors who didn't know life insurance can be a business expense if you use the right policies.

Relevant Life Insurance

Relevant life pays a tax-free lump sum to your family if you die, and it can be essential for businesses with a sole owner. It's the same as a regular personal life insurance policy and is offered by the same insurers, but the business pays the premiums, which provides tax relief.

Tax Relief

The premiums are treated as a business expense and actually make the policy 64% more tax efficient than a personal policy. When paid via relevant life, the business can claim corporation tax relief; you pay no income tax on a withdrawal to pay for the policy, and there is no benefit-in-kind charge either.

When you consider that the benefit is also paid out tax-free if ever needed, it's one of the most tax-efficient personal expenses you can pay for through your business.

Personal cover vs Relevant life

The table below shows the true cost of a personal policy when you factor in the tax you would need to pay to extract funds from the business to pay for it, versus the cost of relevant life insurance, and shows a substantial saving.

Essential cover for your family

As a breadwinner for your family, if you suddenly died, so might your income; this leaves the people that survive you, often your family, at risk too. A life insurance policy that pays a tax-free lump sum in the event of your death is essential for most people. It gives them some breathing room financially while they adjust to life without you. Many policies we put in place can actually replace the income you were generating for life, simply by choosing the right level of cover.

The 'gold standard' of cover

Most directors we speak to have a policy in place that pays off a mortgage if they die. And although it's great to be mortgage-free, living in that house will still be expensive, and without income, the family could be forced to sell anyway, defeating the purpose of paying off the family home in the first place.

This can be solved by increasing the policy cover amount to cover both the mortgage and some extra, which we like to call a legacy payment. If your mortgage is £500,000 and your income is usually £50,000, a £1.5 million life policy would cover both. £500,000 would settle the mortgage, and the additional £1 million could be invested via an IFA, aiming to generate 5% per annum, resulting in £50,000 to replace the lost income. The result is that nothing changes financially if you die.

Cost of premiums

For a healthy 45-year-old director seeking a £1.5 million relevant life policy until age 68, premiums can be around £126 a month, paid by the business. Various health conditions can affect premiums, but we can help by providing a quotation from every insurer for you to consider.

Below is a table of premiums for various ages at both £500,000 and £1,000,000 cover.

For a personalised quotation, contact our team. We can quote you from every insurer and guarantee the best value premiums.

Cover for a spouse

If your spouse also has shares in your business, even if it's simply to share dividends, then we can also provide a relevant life policy for them as well, resulting in life cover for both of you, in the most tax efficient way.

Executive Income Protection

Income protection is as important as knowing how your family will survive financially if you're unable to work.

Insure 80% of salary and dividend

The great thing about executive income protection is that you can insure 80% of your salary and dividends, a feature unique to this kind of insurance. Many directors take a small salary and the rest as dividends to save on national insurance, so it's essential that you have a policy that covers both and not just the small PAYE income that you receive.

Covering dividend to a spouse

You can also insure income you might pay to a spouse as dividned. Its common for smaller companies to add a spouse or partner as a shareholder to make income withdrawals more tax efficient.

Some insurers understand this and allow both sets of dividends to be included in one income protection policy, which is a standout feature that can't be matched by a standard personal policy.

Tax treatment

Executive income protection is paid to your business and, as a result, is also paid for by the business, which can result in a reduction in corporation tax.

There is no benefit-in-kind charge either, making it tax efficient for both the business and you personally.

How payouts are treated

In the event that a claim is made, the income is paid to your business. It would then be down to you to either pay this as income or leave the funds in the business. Usually you would withdraw the funds as PAYE, and as a result the business would have no corporation tax to pay on the proceeds.

If you don't withdraw the funds as PAYE, they could be treated as income for corporation tax purposes. If you ever need to make a claim, it's best to speak to our team, and we can guide you through the process.

How much do premiums cost?

Below is a table that shows the premiums for both £50,000 and £80,000 income, and a range of premiums for various ages.

All cover is until age 68 with a 3 month deferral period.

Deferral Period

Each income protection policy has a period that must expire before a payment is made. Deciding on the right period will depend on how much cash your business or you have as a buffer. If you have 6 months set aside, a 6-month deferral would be ideal. We can help you decide on the right period on a discovery call.

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