Relevant Life Plans - Tax efficient life cover for companies and their directors, what you need to know.
If you are a company director and pay for your own life cover, getting your company to take out cover on your life could save a lot of money.
Relevant life policies are a way of providing highly tax efficient death in service benefits on an individual basis for you and your key employees, no matter how small your business is.
Who might relevant life policies be suitable for?
- Small businesses that do not have enough eligible employees to warrant a group life scheme
- High-earning employees or directors who have substantial pension funds and do not want their death in service benefits to form part of their lifetime pension allowance
- Members of group life schemes who want to top up their benefits beyond the scheme rules
- They are not suitable for the self-employed or equity partners or members of limited liability partnerships, although their employed staff could be covered.
Are there limits to the cover I can have?
The legislation does have some limits to qualify for the tax concessions, and to ensure these are met:
- The cover must be paid in a single lump sum before the age of 75
- Only death benefits can be provided
- Benefits should be paid through a discretionary trust
- Beneficiaries should be restricted to the employee’s family members and dependants.
What is the maximum amount of cover I could have?
The maximum cover available is up to 25 times the salary for employees aged up to 39, and 20 times the salary for employees aged 40 and older. This can include salary, regular dividends paid in lieu of salary and any taxable benefits in kind.
Assuming £1,000 premium for life cover, the saving to the company on a relevant life cover plan can be as much as £770. Net cost to company to generate income for director to pay own life cover premium of £1,000 is £1,570. Net cost to company for Relevant Life Plan premium of £1,000 is £800 – saving £770.
This assumes the cover is for an employee paying income tax at 40% and employee’s NI contributions at 2%. Also assumes company pays corporation tax at small companies’ rate of 20% and will pay employer’s NI contributions at 13.8%. Contact us for detailed explanation of this example.
Please contact Stuart Cardozo on 0131 564 0172, or email Stuart@ConduitFinance.com for more information about Relevant Life Plans.
The purpose of this blog is to provide technical and generic guidance and should not be interpreted as a personal recommendation or advice. It represents our interpretation of current and proposed legislation and HMRC practice at the date of publication. These may change in future.
Conduit Private Finance LLP is an appointed representative of SWC Independent Ltd which is authorised and regulated by the Financial Conduct Authority.