One major benefit of being a company director is that you can (tax efficiently) pay for your Life Insurance through your company. This type of cover is called a Relevant Life Plan and provides the owners, directors and employees of a business with important Life Insurance cover that will payout to your family upon your death. With the premiums being paid by the business there are tax benefits.
What is a Relevant Life Plan?
Relevant Life Plans are a financially effective way for a company to provide life insurance for its directors and employees. It is tax-efficient for both the employer and the employee and will pay out to the policyholders family or financial dependents.
The Relevant Life Plans can be put in a Trust at the start. This allows for the quick payment of the policy upon death and ensures that the payout is not subject to inheritance tax.
Relevant Life Plans are designed to pay a lump sum to the policyholders family if they die, while the plan is in place. It will also payout if the director is diagnosed with a terminal illness, with a life expectancy of fewer than 12 months, that meets the insurer’s definition.
Premiums are paid, and the policy is owned, by the employer. It also offers continuation options if the director leaves or leaves the business.
Relevant Life Plan Tax Efficiency explained:
The Employee:
Despite the premiums being paid by the business, this is not seen as a benefit in kind and so there is no National Insurance or Income Tax paid on the premiums. So the employee will save considerably.
Unlike a group death-in-service insurance scheme, a relevant life policy is deemed to be ‘non-registered’ which is important as any claim paid out does not count towards an employee’s pension Lifetime Allowance. If the lifetime allowance is exceeded by pension savings, death in service benefit, or a combination of the two, a tax charge is payable. Relevant life insurance could, therefore, be a viable option for high earning directors affected by the pension lifetime allowance.
Beneficiaries:
As the policy is written into trust, any lump sum is paid into the trust for the beneficiaries and is not liable to Income Tax and usually free from Inheritance Tax.
Writing the Policy into Trust
A trust is a legal arrangement that allows you to gift the cash lump sum payable from your life insurance policy to your chosen beneficiary/beneficiaries. Once you have done so, the policy is looked after by a third party, known as the trustees, chosen by you. By placing the insurance policy into trust, you effectively give up ownership of it to the trustees for them to hold for the beneficiary/beneficiaries.
If you are a director or own a company and want to put your Life Insurance through the business please get in touch with our advisors today.
