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Relevant Life

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At the end of last month's article I mentioned that business owners can potentially treat life insurance as an expense. This generated a lot of interest so I'm using this month's article to explain how.


This can be done through a "Relevant Life Policy" which is a stand-alone death-in-service plan. As it is classed as a death-in-service plan there are no tax implications for the employee even though the employer is paying the premiums, i.e. the employee pays no income tax and national insurance on this benefit.

To add to the tax saving the employer will be normally be able to claim the premium as a business expense and therefore pay no corporation tax on the premiums. Also, unlike certain other employer paid for life insurance, the lump sum paid out on death will not be added to your lifetime allowance for pension purposes. This means a Relevant Life Policy has a big advantage over death-in-service in a registered pension scheme if you have significant pension funds and are close to the lifetime limit.

In short, the tax benefit of writing life insurance as a Relevant Life Policy can be huge as this example shows. Let's assume you have a £100 per month life insurance premium. If you pay for it yourself out of net income and you are a 40% taxpayer, your company will have paid you £172.40 gross (with £69 income tax and £3.40 national insurance deducted). The company will then have paid £23.80 employer's national insurance on this, giving it a total gross cost of £196.20. After 20% corporation tax relief of £39.20 the net cost to the company is £157.

But if you take out a Relevant Life Policy with the company paying the £100 premium, the company obtains 20% corporation tax relief of £20, and the net cost is only £80. The net cost of the premium has nearly halved! This can make it worth re-writing existing personal life insurance policies as relevant life policies, even if they were written relatively recently and the premiums are still competitive.

 

This is one of the many legitimate tax planning opportunities open to business owners, as always speak to your financial adviser for further information.

 

For more information on this subject, or for any other Financial Planning advice, please speak to one of our advisers on 01903 821010 or email This email address is being protected from spambots. You need JavaScript enabled to view it.

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