Most people need life insurance; few, if any, actually want to pay for it! Relevant life could let you get it for almost half price.
A Relevant Life Policy is a stand-alone death-in-service plan. It is set up under the provisions of Section 393B(4) of the Income Tax (Earnings and Pensions) Act 2003. If you meet an accountant who tries to suggest it should be treated like Key Man you should quote this section and ask him or her to look it up.
Life insurance policies can be set up on a “relevant” life basis, i.e. the company pays the premium and the plan is put in trust to benefit the family of the employee. If you have an existing personal insurance life plan or you need to buy some ask us about relevant life insurance – it could save you a fortune.
The great news about this route is that:
- The premium is an allowable expense for corporation tax.
- The premium paid by the company helps the employee but it is not a P11d benefit so the employee pays no tax or NIC either.
- The benefit goes straight to the employee’s dependents NOT the business and there is generally no tax on the proceeds.
- The plan must be term insurance it can never attract a surrender value
- The plan must be single life:
- It can be single life or decreasing so great for mortgage protection.
- From 2016 it can include critical illness cover.
- Benefits are NOT part of your lifetime allowance for pensions.
- Premiums are not part of your annual allowance for pensions.
In the example below when a higher rate tax payer takes enough money out of a company to pay his life policy premium of £1,000 personally, it costs the business £1,570. Using relevant life almost halves this cost.
| Ordinary Life Policy | Relevant Life Policy | ||
|---|---|---|---|
| Payment | 1,000 | 1,000 | |
| Company Gross Cost | Employee’s NIC @ 2% | 34 | |
| Income Tax @ 40% | 690 | ||
| Employer’s NIC | 238 | ||
| Total Gross Cost | £1,962 | ||
| Company Net Cost | Corporation Tax Relief @ 20% | 392 | 200 |
| Net Cost | £1,570 | £800 |
We are independent whole of market advisers. We do some business with Bright Grey and their detailed guide on relevant life (including the legislative framework) may be found here.