Relevant Life Insurance is a form of life insurance targeted at UK companies. It works similarly to regular life insurance – paying out a lump sum on death – but is paid by the company and can cover any person who works for the company, including directors. Payouts go to the family in the event of a claim via a discretionary trust.
Cut tax with relevant life insurance
What follows are some of the reasons you should consider offering relevant life insurance to those who work at your company.
1. Savings Of Up To 52%
Tax efficiency makes relevant life insurance policies desirable to employers and employees. High-income employees (those who are most likely to want relevant life insurance), can sometimes exceed the taxable threshold of their lifetime pension allowance of £1.25 million. Unlike regular life insurance, relevant life insurance doesn’t count towards this allowance, and so policyholders can enjoy tax savings of up to 52 per cent.
In addition, relevant life insurance doesn’t count as a benefit-in-kind either, meaning that it does not need to be included on an employee’s P11D form, helping them to keep more of the money they earn.
2. Any Claim Is Paid Via A Trust
In the UK, people must pay inheritance tax if your estate is worth more than £325,000 if a person doesn’t give their assets to their partner or their children in their will or over £400,000 if they give their possessions to their children. Inheritance tax above these thresholds is set at 40 per cent, so a lot of an employee’s estate could be transferred to the state when they die. All relevant life insurance claims, however, are paid via a trust and do not count as part of the policy holder’s estate. As a result, whomever the policyholder passes their estate onto will not have to pay additional tax on the money from any payout.
3. Offset Premiums For Corporation Tax
Employers can benefit from relevant life insurance by offsetting premiums against corporation tax. The annual or monthly premiums for relevant life insurance count as a business expense, reducing the amount of taxable profits.
4. Employee Retention
Many businesses struggle to keep their best employees. Good employees are always on the lookout for new opportunities and ways to improve their quality of life. If another company offers relevant life insurance, an employee may use that as a reason to switch jobs. Providing relevant life insurance not only helps to keep employees working with you but also shows that you care about their wellbeing and that of their families. It can be an excellent tool for improving workplace relationships, especially with management.
5. Tax-Free Lump Sum
Your employees do not want to have to worry about their families facing large tax bills when they die. Fortunately, the benefit payments from life insurance are paid tax-free and do not count towards regular income. The tax authorities do not consider policy payouts to be annual or lifetime pension payouts and, therefore, do not attract any tax (which can be as high as 51 per cent).
Disclaimer: Information in regard to tax treatment and basis of reliefs are dependent on current legislation. Individual circumstances are not guaranteed and may be subject to change. This is to be used as a guide only and we always recommend speaking to a qualified tax advisor. The Financial Conduct Authority do not regulate trusts.
Jody is the Managing Director and founder of My Key Finance Ltd. He has over 16 years experience as a protection adviser and is an authority within the UK business protection market. Jody has written articles for Business Matters Business Directory, and been featured in Forbes. As editor and Author of our blog Jody is hoping to educate and advise people with more in depth details and information on the various subject relating to the protection market.