Tax Efficient Life Cover for Small Business Owners
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%