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Relevant life insurance and tax
Relevant life insurance is a cost-effective and tax-friendly way for an employer to offer a term assurance plan on the life to their employees, for example company directors and salaried partners with the sum assured payable to their family or financial dependents. It will also pay out if the employee is diagnosed with a terminal illness, with life expectancy of less than 12 months.
Who can be covered by a Relevant Life Plan?
The employee must be a UK resident and employed by a UK-resident business (England, Wales, Scotland and Northern Ireland only). A UK resident employee would include company directors and salaried partners.
Who is not eligible for a Relevant Life Plan?
Members of a Limited Liability Partnership (LLP), Sole Traders (as owners of their own business), Partners of a Traditional English Partnership and Shareholders who are employees.
Relevant life insurance tax treatment
Relevant life cover is owned by a company. Premiums are paid by the employer and can be offset against corporation tax as long as the policy forms part of the employee’s remuneration package.
It must be exclusively “for the purpose of trade” and is not considered a business asset. Its sole purpose must not be to avoid tax. Businesses pay no National Insurance on relevant life premiums, which is a further cost saving.
In order to quality for favourable tax treatment, a relevant life insurance policy must meet the following HMRC requirements:
- The policy is entirely and only for protection and can have no surrender value
- The employee is the person covered; this does not cover shareholders who are not employees.
- Employees can include directors and salaried partners who are on the payroll
Contractors, Partners of a partnership, Members of a Limited Liability Partnership (LLP) and sole traders (as owners of their own business) are not eligible to be covered under a Relevant Life Plan and this is because they are not an employee.
Is a relevant life policy tax deductible?
A relevant life insurance can help both employees and employers reduce their tax liability. Both the employer and the employee will avoid paying National Insurance contributions, and because the relevant life insurance is owned and paid for by the business, policy premiums should count as a tax deductible business expense. As long as the premiums are being paid 'wholly and exclusively' for the purposes of the business.
A Relevant Life Plan should not incur a Pensions Lifetime Allowance Charge, because under the current tax rules it does not count towards the annual or lifetime pension allowances.
In the event of a valid claim being made, the cash sum paid out should be free from UK Income Tax, National Insurance and Capital Gains Tax. When the employer sets up a Relevant Life policy written in to trust, the benefits paid should not form part of the deceased's estate so should not be liable for Inheritance Tax.
Is relevant life insurance a benefit in kind?
The premiums are not usually treated as employee income or classed as a benefit in kind.
With tax benefits to both employer and employee, relevant life policy tax relief makes it a compelling choice if you are looking to recruit and retain high-calibre staff who appreciate the value of a great benefits package.
Speak to a qualified financial adviser
Our team of expert financial advisers are on-hand to offer professional advice and answer any questions you have about Relevant Life Plan. You can call us on 0800 197 9208 from 9am to 5pm Monday to Friday (note - we may record and monitor calls).
You can also email us at firstname.lastname@example.org to arrange a call back or book an appointment to speak to us.