As a Company Director a major benefit is being able to obtain life insurance tax efficiently through the company. ‘Relevant Life Assurance’ is the specific type of cover and it provides the directors, owners and employees of a small business with life cover which offers financial protection to their families in the event of loss of life. Because the premiums are paid though the business, it can help to save tax. 
Those who own or are employed by a small business used to have to rely on personal life policies to cover them in the event of death. However, with the introduction of a relevant life assurance policy, which is applied and paid for by the business, it makes it a viable option. The policy is written into trust so the benefit is paid out into trust for the beneficiaries of the employee if they die or are diagnosed with a terminal illness during the policy term. 
 
In nearly all cases, the insurance cost which is paid by the company, is seen as an ‘allowable expense’. Therefore, the cost of the insurance will then become part of the employee’s remuneration package. 
 
It is important to note that this is a specific type of life insurance policy and advice should be taken before setting this up. And, it must be life insurance only and not include critical illness cover. If critical illness cover is included, you may find the premiums are not tax deductible and you have a benefit in kind to the director/employee. 

Tax efficiency of relevant life assurance for: 

Employees - even though the premiums are paid for by the business, the premiums are not treated as benefit-in-kind so there is no Income Tax or National Insurance payable for the premiums on their behalf. 
 
A relevant life policy is different to that of a group death-in-service insurance scheme as it is deemed to be ‘non-registered’. This is important as any claim which is paid out does not count towards an employee’s Lifetime Allowance. In cases where the lifetime allowance is exceeded by pension savings, death-in-service benefit, or a combination of both, then a tax charge is payable. It could therefore be that relevant life assurance is a viable option for high-earning employees affected by the lifetime allowance. 
 
Employer - as long as the local tax inspector deems the premiums to be justified and used exclusively for trade purposes, they then qualify as a business expense. This in turn reduces the corporation tax bill for the company. 
 
Beneficiaries - due to the policy being written into trust, any lump sum is paid into the trust for the beneficiaries and is not then liable for Income Tax and is usually also free from Inheritance Tax. 

Writing the policy into trust & next steps 

From the outset, the relevant life insurance has to be written into trust. The beneficiaries have to be family or dependents of the employee. 
 
It may be that the trust is subject to periodic and exit charges, but they shouldn’t apply providing that any lump sum payment into the trust is then paid out to the beneficiaries at the earliest possibility. 
 
If you are interested in exploring your life insurance options, please contact us today and we can put you in touch with a specialist financial advisor to provide further guidance and, if you are happy to go ahead, help get the life insurance set up for you. 
 
 
 
 
Written by 
 
Nicola J Sorrell - 
Effective Accounting 
 
Founder | Xero Champion | IR35 Expert 
Tagged as: Insurance
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