A relevant life policy is a relatively new type of tax efficient life insurance for directors and employees. This product has to be 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 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 for a quick outline on relevant life insurance.
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 insurance the best way for a director to protect the family in the event of death.
Relevant Life, Tax Efficient Life Cover for Directors
Relevant Life Insurance is available to directors and employees of the 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.
You will need a “Trust” to be set up alongside a relevant life . Any pay-out will be paid to the trust. 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 and of sound mind. 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 your 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 insurance is a life only policy 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 insurance. Setting up the trust is also part of the service and we can provide all documentation needed without any extra cost.
Trusts and Taxation advice are not regulated by the Financial Conduct Authority
Assumed figures used for the “How Much can i Save”
Corporation tax @ 20%
Employee National Insurance @ 2%
Employer National Insurance @ 13.8%