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Tax Efficient Life Cover for Small Business Owners

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Relevant Life Assurance

As an owner or director of a Limited company there are now additional benefits available that could save up to 50% of the cost of providing life cover for both yourself as Director and to your employees.

The true cost of providing life cover as a small business means that you are not only paying the premiums for the insurance, but the Employees National Insurance, Income Tax and Employers National Insurance. A Relevant Life contract is authorised by HMRC and is paid by the company without being recognised as a P11d benefit. Therefore, the aforementioned taxes are legitimately avoided whilst providing valuable life assurance that is paid directly to a nominated beneficiary through a discretionary trust that generally means no Inheritance Tax is liable.

 

When is it suitable?

For smaller businesses that do not wish to set up a group life assurance scheme

For employees who are age under 75

 

When it is not suitable?

To provide cover for individuals who are not employees of the company

If additional benefits such as Critical Illness cover are required

 

There are limits to the level of cover that can be provided under a Relevant Life policy which are based on the age of the life assured;

Up to age 40 – 20x earnings including any benefits

Age 40-59 – 15x earnings including any benefits

Age 60+ – 10x earnings including any benefits

 

Relevant Life contracts do not count towards an individual’s lifetime allowance for pensions.

Tax planning is a complex area and there are criteria that must be met in order to qualify for a Relevant Life policy, therefore, it is crucial to seek professional advice. Please get in touch to arrange a meeting and see whether this benefit would be appropriate for your circumstances.

The table below shows the effect of the savings. In the example shown the client is paying £200 per month for life assurance, on the left is the cost if the employee pays the premium themselves and on the right is the effect of using a Relevant Life policy. (Figures courtesy of Zurich Assurance Ltd.)

 

Employee pays premium (from net salary)                      Relevant Life Policy

Cost to employee                                                             Cost to employee

Premium (net payment required to pay premium) – £200      Premium – N/A

Employee National Insurance – £50                                   Employee National Insurance – N/A

Employee Income Tax – £166.67                                       Employee Income Tax – N/A

Cost to employer                                                              Cost to employer

Premium – N/A                                                                 Premium -£200

Employer National Insurance (on gross pay) – £57.50      Employer – N/A

Total cost to employer and employee – £474.17                   Total cost to employer and employee – £200

Less Corporation Tax – £90.09                                            Less Corporation Tax – £38

Total – £384.08                                                                  Total – £162

 

Savings via a relevant life policy £222.08 or 57.8%

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