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If you’re a company director and you have life cover to protect your family, your business could be paying more than it needs to.
Relevant life policies are a way of providing death-in-service benefits on an individual basis no matter how small your business is.
What are the benefits of a Relevant Life Policy?
- Although the company makes the payments, they’re not treated as a benefit in kind, and so would not be included in your income tax assessments. This can be a significant saving, particularly for a higher-rate taxpayer.
- Unlike a registered group scheme, the benefit will not form part of your annual or lifetime pension allowance.
- These payments may be treated as 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 are relevant life policies suitable for?
- Small businesses that don’t have enough eligible employees to warrant a group life scheme.
- High-earning employees or directors who have substantial pension funds and don’t want their benefits to form part of their lifetime allowance.
- Self-employed or equity partners’ staff.
Relevant life policies aren’t suitable for self-employed or equity partners themselves.
| How a relevant life policy can cut company costs | |||
| Payment | Ordinary life cover | Relevant Life Policy | |
| £1,000 | £1,000 | ||
| Company gross cost |
Employee’s National Insurance contribution at 2% | £34 | Nil |
| Income tax @ 40% | £690 | Nil | |
| Employer’s National Insurance contribution at 13.8% | £238 | Nil | |
| Total gross cost | £1,962 | £1,000 | |
| Company Net Cost |
Corporation tax relief at 20% | £392 | £200* |
| Net Cost | £1,570 | £800* | |
| Source Bright Grey Website 2014 | |||
*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%.