Relevant Life Assurance
If you are a company director and you have life cover to protect your family, you could be paying more tax than required.
Relevant Life Assurance is a term assurance plan available to employers to provide an individual death in service benefit for an employee in a tax efficient manner. It is designed to pay a lump sum if the person covered dies whilst employed during the term. Relevant Life Assurance is paid for by the employer.
Benefits of Relevant Life Assurance
- Although the company makes the payments, they are not treated as a benefit in kind and so would not be included in your tax assessments. This can be a significant saving, particularly for a higher rate taxpayer.
- Unlike a registered group life scheme, the benefit will not form part of your lifetime pension allowance and premiums will not form part of your annual pension allowance.
- The payments may be an allowable expense for the company in calculating their tax liability, as long as the local inspector of taxes is satisfied they qualify under the ‘wholly and exclusively’ rules.
Who is a Relevant Life policy suitable for?
- High-earning directors and employees who do not want their death-in-service benefits to count towards their lifetime pension allowance.
- Small companies with too few members for a group life scheme that want to provide employees and directors with tax efficient death-in-service benefits.
How a Relevant Life policy could cut company costs
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Ordinary Life Cover
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Relevant Life Policy
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Premium
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£1,000
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£1,000
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Company gross cost
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Employee's National Insurance contribution at 2%
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£34
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Nil
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Income tax at 40%
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£690
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Nil
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Employer's National Insurance contribution at 13.8%
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£238
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Nil
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Total gross cost
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£1,962
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£1,000
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Company net cost
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Corporation tax relief at 20%
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£392
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£200*
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Net Cost
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£1,570
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£800*
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*Assumes that corporation tax relief at 20% has been granted under the ‘wholly and exclusively’ rules. In both cases we have assumed a payment of £1,000 each year for the life cover on an employee who is paying income tax at 40% and employee’s National Insurance at 2% on the top end of income. We have also assumed that the employer is paying corporation tax at the small profits rate of 20% and will pay employer’s National Insurance at the contracted in rate of 13.8%. (Source: Bright Grey)
This article (Relevant Life Assurance) is intended to provide a general appreciation of the topic and it is not advice.
For more information on this aspect of "business protection", please contact Future Vision Financial Planning Ltd on 0203 764 9810 or email us at
finbarr@futurevisionfp.co.uk . We will be happy to assist you.
