As a company director in the UK, ensuring financial security for yourself and your loved ones is crucial. One way to achieve this is through relevant life insurance, a tax-efficient option that can provide peace of mind. Here’s a closer look at what relevant life insurance is and how it can benefit you and your company.
Providing advice such as this is part of our standard business advice to our clients.
What is Relevant Life Insurance?
Relevant life insurance is a type of life insurance policy taken out by a company on behalf of an employee, including the company director. The company pays the premiums, and the policy is written into a discretionary trust, ensuring that the payout goes directly to the beneficiaries if the insured individual passes away.
Tax Benefits
One of the primary advantages of relevant life insurance is its tax efficiency. Here’s how it works:
Tax Relief for the Company: The premiums paid by the company are usually treated as an allowable business expense, meaning they can be offset against the company’s Corporation Tax bill.
No Benefit-in-Kind: The premiums are not considered a benefit-in-kind for the employee, so there’s no additional tax liability for the director.
No National Insurance Contributions: The company does not have to pay Employers’ National Insurance Contributions on the premiums.
Tax-Free Payout: The payout from the policy is generally free from Income Tax, National Insurance, and Inheritance Tax.
Who Can Benefit from Relevant Life Insurance?
Relevant life insurance is particularly beneficial for company directors and employees of small businesses that are too small to set up a group life insurance scheme. It’s also useful for high earners who want to maximize their death-in-service benefits without impacting their pension lifetime allowance.
Setting Up a Relevant Life Insurance Policy
To set up a relevant life insurance policy, follow these steps:
Choose a Provider: Select a reputable insurance provider that offers relevant life insurance policies.
Set Up the Policy: The policy should be set up in a discretionary trust to ensure the payout goes directly to the beneficiaries.
Pay the Premiums: The company will pay the premiums, which should be recorded as a business expense.
Maintain Records: Keep detailed records of the premiums paid and the policy details to ensure compliance with HMRC regulations.
Conclusion
Relevant life insurance is a smart way for company directors to provide financial security for their families while enjoying significant tax benefits. By taking advantage of this option, you can ensure that your loved ones are protected without incurring unnecessary tax liabilities.
If you think we can help your business, get in touch or call us at 0115 646 2003.
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