As a business owner, it is possible to purchase personal life cover through your business, saving money through corporation tax and without creating a “benefit-in-kind”.
This type of plan is called “A Relevant Life Policy”. The premiums can be treated as an allowable expense for the employer in calculating their tax liability, provided that the local inspector of taxes is satisfied they qualify under the ‘wholly and exclusively’ rules.
It is an alternative way of providing a lump sum on death for an individual, without the need to set up a registered group life scheme. This solution is particularly useful where small businesses do not have enough eligible or relevant employees to warrant a group life scheme.
It can also offer additional benefits for high-earning employees who have substantial pension funds and do not want their death in service benefits to form part of their lifetime allowance.
What are the advantages and benefits of taking on a relevant life policy?
Firstly, the benefit will not form part of the employee’s lifetime pension allowance or part of their annual allowance. The employee is therefore still able to make full use of their annual allowance to make contributions to a registered pension scheme.
Secondly, the relevant life policy premiums paid by employers are not normally assessable on the employee as a benefit in kind so are therefore not subject to income tax. Neither are they normally assessable for employer or employee National Insurance contributions.
There are a number of conditions laid down in the legislation for relevant life policies. Only life cover can be provided and benefits are payable only as a lump sum to an individual or a charity, for example through a trust.
There is no statutory limit to the amount of benefit that can be provided but any product providers will set their own limits.
If you want to find out more about Relevant Life Policies, contact one of the team who will be happy to help.