A relevant life insurance policy is applied and paid for by the business with the employee or director is the life assured. The policy is written into trust so it pays out the benefit into the trust for the employee’s beneficiaries if the employee dies or is diagnosed with a terminal illness during the term of the policy.
In most cases, the cost of the insurance, paid by the company, is deemed to be an ‘allowable business expense’. If this is the case then the cost of the insurance will become part of the employee’s overall remuneration package.
Relevant Life insurance is Tax Efficient for:
Although the premiums are paid for by the business, the premiums are not treated as a benefit-in-kind so no Income Tax or National Insurance on the insurance is payable for the premiums paid on their behalf.
Unlike a group death-in-service insurance scheme, a relevant life policy is deemed to be ‘non-registered’ which is important as any claim paid out does not count towards an employee’s pension Lifetime Allowance. If the lifetime allowance is exceeded by pension savings, death in service benefit, or a combination of the two, a tax charge is payable. Relevant life insurance could, therefore, be a viable option for high earning employees affected by the pension lifetime allowance.
Providing the local inspector of taxes deems the policy premiums to be ‘wholly and exclusively’ for the purposes of trade, they qualify as an allowable business expense. This, therefore, reduces the business’s corporation tax bill.
As the policy is written into trust, any lump sum is paid into the trust for the beneficiaries and is not liable to Income Tax and usually free from Inheritance Tax.
Placing a life insurance policy into trust is available for individuals as well as via your business. To learn more about Trusts, Inheritance Tax and Probate click here.