Huge Savings On life Insurance with a Relevant Life Policy
Within the last 12 months a new type of life insurance called a “Relevant Life Policy” has been breaking onto the market. This product has to be very carefully set up to ensure it is done correctly and the full tax benefits received. The policy is designed to give directors and employees tax efficient life Insurance policy which can be paid by their Limited company with the beneficiary being a named person, usually a partner, child or family member. Please watch the video below which gives a great outline on what a relevant life policy could offer your company.
How Much Will I Save:
- Basic Rate Tax Payer (20%) – 40% Savings compared to personal premium
- Higher Rate Tax payer (40%) – 49% Savings compared to personal premium
- Highest Rate Tax Payer (50%) – 58% Savings compared to personal premium
*Please see the bottom of the page for assumed figures in the above illustration.
Working Example: If your annual premium was £600 a year on a relevant life policy, the equivalent gross premium would be £1,177 a year as a personal.
It is very tax efficient as the company can set it off against its profits, therefore saving
the 20% corporation tax, plus as it is paid from the company it avoids being paid from your personal taxed earnings. If you are a higher rate tax payer, your premium of £50 a month (for example) is the equivalent to approximately £80 before tax. Also there are savings on National insurance contributions by both the employer and the employee. These savings make a Relevant Life policy the best way for a director to protect his family in the event of his death.
Relevant Life, Tax Efficient Life Cover for Directors
To qualify for relevant life policies you have to be a director of a company. The company must pay the premiums, and the beneficiary must be a third party i.e. Family member or spouse. Because you do not receive any of the benefit yourself it is not taxed as a benefit and does not have to appear on your P11D form. We are not tax advisers and would strongly advise you to speak to a suitably qualified person to discuss the actual tax benefits.
With a relevant life policy you will need a “Trust” to be set up. This trust will be the beneficiary of the policy and can have numerous trustees and beneficiaries. It would be advisable to have more than one trustee in case one of them dies. Trustees have to be over 18 years old. You can have as many beneficiaries as you like, additional forms can be completed to add them. Next to the beneficiary details you have to specify the % share they are entitled to.
Along with the trust form you can submit a “Letter of Wishes”. A letter of wishes does pretty much what it says. You can lay down you intention for the benefit and how it should be used, for example, if the trustee is a brother or sister, but the beneficiary is your younger children. You may wish that the children do not receive any money until they are 21 years old, or that it can only be used to buy a property or go towards school fees. The letter of wishes is not a legally binding contract, but it is intended to clarify the wishes of the deceased. And considering it is a trustee who you have put in place, you would expect your wishes to be granted.
Relevant Life Policies are life only and you cannot bolt on any critical illness. Not all providers allow relevant life policies so it is worth speaking to an independent adviser who will be able to source the most suitable product and provider for your needs.
MykeyManInsurance.com are specialists in this type of cover and can quote all UK companies that currently offer relevant life policies. Setting up the trust is also part of the service and we can provide all documentation needed without any cost.
Assumed figures used for the “How Much can i Save”
Corporation tax @ 20%
Employee National Insurance @ 2%
Employer National Insurance @ 13.8%
For more information on relevant life go here.