In the final of the Business Protection posts from me (for now), I will cover What is a Relevant Life Plan?
What is a Relevant Life Plan?
Relevant Life Plans provide life cover which can be taken out and paid for by the business. The plan is put into a trust for the dependents or desired beneficiaries of the life assured. The result of this is:
- A lump sum can be paid to chosen beneficiaries on death within the policy term in the same way a personal protection policy (or a death in service scheme) would work
However:
- There is no National Insurance liability
- The premiums are not treated as a benefit-in-kind
- There is no personal tax liability
- There is a likelihood that these payments will be classed as allowable deductions for the business. This may help to reduce any potential Corporation Tax liability
- The payments do not count towards an individual’s annual allowance for pension contributions or their lifetime allowance for pension savings
Company Directors can set up life cover for themselves and employees of the business. Relevant Life Plans can be used where there are too few employees for a death-in-service scheme. The company pays the premiums, with the added potential of reducing the company’s Corporation Tax liability.
For Example:
Following the death of Bob and the liquidation of ABC Ltd, Jo has set up a limited company on her own, and she decides to take out some personal life cover. She pays £150 per month. She is a basic rate taxpayer. To earn the £150, Jo has paid £3.85 NIC and £38.46 income tax. Her company has paid NIC of £26.54. Less corporation tax, this premium has, in essence, cost Jo and her company £175.80.
If Jo’s company paid the premium via a Relevant Life Plan, the net cost, less corporation tax, would be £120 – a saving of £55.80 or 31.5% for Jo and the Company.
Jo’s company does well, and she becomes a higher-rate taxpayer; the cost to her and the Company is now £235.45 for her to earn the £150 per month to pay the premium. If the Company paid, however, it would still cost £120 – a saving of £115.45 or 49%.
Conclusion
A Relevant Life Plan can be used to provide life cover for directors and employees where a death in service scheme (DIS) is not feasible. It also has additional benefits over and above this, where, for example, more cover is required or where the individual has a lifetime allowance issue.
If your Company would like to consider taking out a relevant life plan for one or more directors or employees, contact me for a complimentary, no obligation initial meeting.