11 Purdeys Way, Rochford, England, SS4 1ND
11 Purdeys Way, Rochford, England, SS4 1ND
Jody Pearmain
Relevant Life Insurance is a tax-efficient life cover policy designed for business owners, directors, and employees. The insurance provides financial protection for an employee’s family should the employee unexpectedly pass away while employed at the company. Relevant Life Insurance can be used to insure employees at a UK company, including company directors, partners and salaried employees. One of the most common questions directors ask us is how HMRC treats these policies for tax purposes.
This guide explains how HMRC views Relevant Life Insurance premiums, tax relief eligibility and how to structure your policy correctly
Quick Answer: Yes — in most cases, Relevant Life Insurance premiums are tax-deductible for the company when the policy is set up wholly and exclusively for business purposes, as recognised by HMRC. The employer pays the premiums, claims them as an allowable business expense for Corporation Tax, and there’s no P11D Benefit in Kind for the employee.
In addition to the tax benefits, some Relevant Life Insurance policies also include Critical Illness cover, which provides the named beneficiaries with a lump sum should the insured employee become critically ill and be unable to work. The employee may be unable to work due to an illness such as cancer, a stroke or another terminal illness.
Unlike Personal Life Insurance policies (which the employee pays for), the business pays for the Relevant Life Insurance premiums. There are significant tax advantages for Relevant Life Insurance as the premiums are typically considered an allowable business expense. Continue reading to find out what you can expect from the Relevant Life Insurance tax treatment, including the specific tax benefits and eligibility criteria, and why the Relevant Life policy is tax-deductible.
| Feature | Relevant Life | Personal Life | Death in Service |
|---|---|---|---|
| Who pays? | Business | Individual | Employer (group scheme) |
| Tax-deductible? | Yes (employer) | No | Yes |
| Benefit in Kind? | No | N/A | No |
| Portable if you leave? | Yes | Yes | No |
Along with providing financial security for your employees’ beneficiaries, there are also various Relevant Life policy tax benefits for your company and employees, as detailed in the sections below. It’s important that you seek professional advice to make sure your company is getting the right Relevant Life policy and Corporation Tax relief.
HMRC typically allows Relevant Life Insurance premiums to be treated as an allowable business expense. This can reduce your company’s Corporation Tax liability and how much Corporation Tax the business needs to pay.
Example: A limited company pays £100 per month for a Relevant Life policy on its director. At a 25% Corporation Tax rate, the business can reclaim £25 of that each month — meaning the real cost is just £75. Compared to paying for a personal policy from post-tax income, the saving is roughly 40–50%.
Unlike salaries and bonuses, Relevant Life Insurance doesn’t incur employer National Insurance contributions. This can further save the business money as you won’t have to pay National Insurance contributions on Relevant Life Insurance premiums.
Along with providing tax benefits to companies, the Relevant Life policy tax treatment can be highly tax-efficient for employees too. Most policies qualify for relief, but there are some situations where HMRC will not allow the premiums to be treated as a deductible expense.
HMRC can deny Corporation Tax relief if the policy fails the “wholly and exclusively for business purposes” test. Here are the main scenarios where that can happen:
Before claiming relief, double-check policy ownership and purpose with your accountant or adviser — it’s a simple safeguard against HMRC challenges. When the policy does meet HMRC’s criteria, both the employer and the employee benefit — as the cover is tax-efficient on both sides. Here’s how it helps the individual:
As Relevant Life Insurance isn’t considered a P11D benefit in kind, employees don’t pay additional National Insurance. By comparison, personal life insurance is paid from already-taxed income (though personal policy payouts themselves aren’t subject to Income Tax). A further benefit for beneficiaries is faster payment because the policy is written in trust and usually bypasses probate.
Relevant Life Insurance is set up in a discretionary trust, which means that the financial payout won’t count towards the employee’s estate for Inheritance Tax. This can be particularly helpful if your employees are already close to the nil-rate band. The standard Inheritance Tax rate is 40% and is only charged on estates that are worth above the £325,000 threshold.
To secure the expected tax treatment, the plan should be placed in a discretionary trust from day one. This ensures:
HMRC guidance recognises this structure; see TRS manual TRSM23030 on life policy trusts.
What About The Pension Lifetime Allowance?The Pension Lifetime Allowance was scrapped in April 2024. It has since been replaced by three different allowances: the lump sum allowance, the lump sum and death benefit allowance and the overseas transfer allowance. However, Relevant Life Insurance doesn’t count towards any of these allowances. Before April 2024, Relevant Life Insurance didn’t count towards the Pension Lifetime Allowance.
The current lump sum allowance is set at £268,275, while the lump sum and death benefit allowance and overseas transfer allowances are set at £1,073,100.
| Allowance | 2024 | 2025 | Relevant Life Impact |
|---|---|---|---|
| Lifetime Allowance | £1,073,100 | Scrapped (Apr 2024) | Not applicable |
| Lump Sum Allowance | — | £268,275 | Unaffected |
| Lump Sum & Death Benefit Allowance | — | £1,073,100 | Unaffected |
HMRC Reference:
See the HMRC Employment Income Manual
EIM15045
and
EIM21800
for HMRC’s official guidance on Relevant Life policy tax treatment.
While there are various benefits to Relevant Life Insurance tax treatment, it’s important to consider the policy rules surrounding this particular type of insurance. Without meeting these rules, your company and employees may not benefit from the tax benefits.
The Relevant Life policy tax rules are listed below:
Relevant Life Insurance plans aren’t just another boring insurance product. They’re a savvy way to look after your team, save on taxes, and make your business more attractive to top talent. 
It’s one of the most efficient ways to provide valuable protection in a compliant, HMRC-recognised structure.
Here at My Key Man Insurance, we can help you compare Relevant Life Insurance cover to find the best fit for your company and employees. We can also help you compare other business protection, including Key Person cover, a business loan policy and shareholder protection.
You can contact us if you have any questions or need guidance. Call 0207 112 8844 or email info@mykeymaninsurance.com.
Usually, yes. If the policy is provided wholly and exclusively for the purposes of the trade (i.e. as an employee/director benefit), premiums are normally treated as an allowable expense for Corporation Tax. The employer should be the policyholder and pay the premiums.
HMRC refs: EIM15045 and EIM2208.
Jody’s take: I always double-check the policy ownership and purpose test before we proceed. It takes two minutes and avoids HMRC headaches later.
No. When arranged correctly, premiums are not treated as a P11D benefit, so there’s no Income Tax or employer/employee NI to pay. It’s typically more efficient than paying for personal life cover from net salary.
See also: Benefit in Kind explained.
Jody’s take: If a client’s accountant is unsure, I share a short summary and point them to HMRC’s manuals. It clears things up fast.
The benefit is paid to a discretionary trust for the employee’s beneficiaries. It’s normally free of Income Tax and falls outside the estate for Inheritance Tax – provided the trust is in place from day one and used appropriately.
Jody’s take: The most common mistake I see is delaying the trust. We set it up with the application so the tax treatment does what you expect.
No. Since the Lifetime Allowance was abolished in April 2024, Relevant Life benefits do not count towards the new lump sum allowances.
Jody’s take: I coordinate with your accountant if you’re close to any allowances – but Relevant Life sits outside those pension limits.
If the main purpose is to protect shareholders, loans, or the company’s capital value (e.g. shareholder protection or key person cover), HMRC may disallow a deduction. Keep Relevant Life for employee benefit only, with the employer as policyholder and the benefit held in trust for the individual.
Jody’s take: If we’re protecting shares or a loan, we’ll structure it correctly under Shareholder/Key Person instead – right cover, right tax treatment.
Employees and salaried directors of a UK company can be covered. One-person limited company directors can be the life assured with the company as policyholder. Umbrella workers and sole traders generally don’t qualify due to the lack of an employer-employee relationship.
More detail: Relevant Life for company directors.
Jody’s take: If you’re a contractor with your own limited company, this can be a very efficient way to arrange life cover.
Yes. A discretionary trust should be in place from the start so the payout bypasses the company and the estate, allowing quick payment to beneficiaries and preserving the intended tax treatment.
Jody’s take: We put the trust in place alongside the application – it’s built into our process.
Relevant Life is primarily designed for life cover. A significant-illness variant has been available in the market. If you’re considering this route, read our overview here: Relevant Life & significant illness – what to consider. Tax treatment can differ, so take advice.
Jody’s take: CI needs a conversation. We’ll weigh the pros/cons and confirm the tax position before you proceed.
