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Relevant life insurance and tax
Relevant life insurance is a cost-effective and tax-friendly way to offer protection to employees in companies that are too small for a group protection scheme or for company directors taking out cover for themselves.
What is relevant life insurance?
Relevant life cover is a term assurance plan available to employers to provide an individual death-in-service benefit for an employee or a director. It’s designed to pay a lump sum if the person covered dies or is diagnosed with a terminal illness while employed during the term of the policy.
Relevant life insurance, like our Relevant Life Plan, is paid for by the employer and is a tax-efficient option for the business i.e. company, partnerships limited liability partnerships (LLP) and sole traders.
Relevant life insurance tax treatment
Relevant life cover is owned by a company. Premiums are paid by the employer and can be offset against corporation tax as long as the policy forms part of the employee’s remuneration package.
It must be exclusively “for the purpose of trade” and is not considered a business asset. Its sole purpose must not be to avoid tax. Businesses pay no National Insurance on relevant life premiums, which is a further cost saving.
In order to quality for favourable tax treatment, a relevant life insurance policy must meet the following HMRC requirements:
- The policy is entirely and only for protection and can have no surrender value
- The employee is the person covered; this does not cover shareholders who are not employees.
- Employees can include directors and salaried partners who are on the payroll
Contractors, Partners of a partnership, Members of a Limited Liability Partnership (LLP) and sole traders (as owners of their own business) are not eligible to be covered under a Relevant Life Plan and this is because they are not an employee.
Is a relevant life policy tax deductible?
As relevant life insurance is owned and paid for by the business, policy premiums count as a tax-deductible business expense.
When an employer sets up a relevant life policy it is written into trust, to keep it separate from the business and estate. Keeping it separate like this means there are no tax implications after death, as the money doesn’t return to the business.
Is relevant life insurance a benefit in kind?
HMRC does not treat relevant life insurance as a benefit in kind so there’s no additional tax to pay, despite the business paying premiums on an employee’s behalf.
If a valid claim is made against a policy, the lump sum pay-out is made free of income tax, National Insurance and Capital Gains Tax. This means the family of the employee will receive more money to help with their new circumstances.
With tax benefits to both employer and employee, relevant life policy tax relief makes it a compelling choice if you are looking to recruit and retain high-calibre staff who appreciate the value of a great benefits package.
Speak to a qualified financial adviser
Our team of expert financial advisers are on-hand to offer professional advice and answer any questions you have about Relevant Life Plan. You can call us on 0800 197 9208 from 9am to 5pm Monday to Friday (note - we may record and monitor calls).
You can also email us at firstname.lastname@example.org to arrange a call back or book an appointment to speak to us.