Relevant Life is a very tax efficient way for directors & employees, particularly where there is no ‘death in service’ scheme in place, to have their life assurance policies set up.
What do I need to know?
The company owns the life assurance policy & it is taken out on the director or employee with the benefits written into trust for their family. It is not a taxable benefit in kind & would normally be allowable as a business expense for corporate tax relief.
Relevant life works on a single life basis & as such works well for small businesses that want to offer life assurance benefits, but do not have enough employees to qualify for a registered group scheme.
There are other benefits as well. Unlike a registered group scheme these policies do not affect the amount you can contribute to or accumulate in your pension scheme. This is particularly useful for high earners who may exceed the lifetime pension allowance.
Premiums paid do not increase the employer’s liability to National Insurance contributions and benefits are also paid tax free to beneficiaries (Inheritance Tax).
Are there any limits to the cover I have?
The legislation does have some limits to qualify for the tax concessions, and to ensure these are met:
The cover must be paid in a single lump sum before the age of 75.
Only death benefits can be provided.
Benefits must be paid through a discretionary trust.
Beneficiaries are normally restricted to family members and dependents.
What are the advantages of using a discretionary trust?
There are restrictions in the legislation on who benefits can be paid to. The use of the trust is the most practical way to make sure these requirements are met. The beneficiaries who could be included are usually family members and dependants.
Having benefits paid through a trust ensures they can’t be taxed as part of the company’s trading income, nor do they form part of the company’s assets.
The trust is discretionary, allowing trustees to be flexible in whom they pay benefits to. However, the person covered can advise the trustees of their intentions by completing a nomination form. Although this is not legally binding on the trustees, it helps to guide them. The trustees will normally be the directors of the company.
Using a trust also ensures that in most circumstances benefits are paid free of both income tax and inheritance tax.
Could your business benefit from Relevant Life?
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IEP Financial is authorised and regulated by The Financial Conduct Authority (FCA)