Relevant Life Insurance is a policy set up for small companies to take out as a life insurance benefit for their employees. Over the last few years it has become more and more popular and with Aviva bringing out a critical illness option its become even more a popular replacement for personal life insurance. But what are the conditions that have to be met to qualify as relevant life and how does HMRC view the policy.
Employees and directors can take out Relevant Life Insurance, as long as the company agree to pay the premiums. But conditions do have to be met in accordance with HMRC.
The premiums are viewed as tax deductible for the employer by HMRC and not seen as a benefit in-kind for the employee. This of course means that the employee does not have to pay the premiums from their already taxed income. This is of course where big savings can be made for the employee against a personal policy.
Relevant life insurance is set up using whats called a “discretionary trust” which means any pay out is a tax free lump sum. As the trust is outside of the estate the benefit amount is not subject to inheritance tax. Unlike group life insurance relevant life does not count towards an employees life time pension allowance which is currently capped at £1.000,000.
The company owns the policy and pays the premiums. The company can claim these premiums as a cost and can be offset as long as its wholly and exclusively “for the purpose of trade” as part of the employee’s remuneration and that the benefit is not a business asset.
While we do give advice on relevant life insurance a life insurance product we are not qualified to give tax advice. Its always worth speaking to your accountant or a qualified tax adviser. There is limited information from HMRC but we can provide template letters for you to use if you want to write to HMRC to check your the tax position.
For those people who are looking for a quote on please go to our relevant life page or just give us a call on 020 7112 8844.
Information regards to taxation levels and basis of reliefs are dependent on current legislation. Individual circumstances are not guaranteed and may be subject to change. The Financial Conduct Authority do not regulate trusts.