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28 April 2017

Relevant life insurance as a tax-free benefit

Employer funded relevant life insurance can provide a useful tax-free benefit for company owners, with the company usually also able to save tax on the premiums.

Taking out life cover to ensure your loved ones are financially secure should anything happen to you gives you and your family peace of mind, and represents sound financial planning for business owners.

It has long been possible to take out Keyman insurance which effectively means that your company foots the bill for the premiums, on which it can claim Corporation Tax relief. However, the downside of such policies is that any payout in the event of your death would usually be subject to tax.

The alternative was to take out personal life cover, so that any payout would go to your beneficiaries tax-free, but then if your company pays the premiums they would be classed as a taxable benefit and entered on form P11D, with personal tax and Class 1A National Insurance being triggered.

However, it is possible to achieve the best of both worlds, with company funded relevant life policies allowing Corporation Tax relief on the premiums, with no taxable benefit for the directors and employees concerned, and with no tax to pay on any pay-out under the scheme in most cases. There are even Inheritance Tax advantages available too. 

Relevant life policies are slightly more restrictive than normal life insurance, for example the maximum age for a relevant life policy cannot exceed 75. But in most cases they represent an attractive tax efficient perk for a company owner which is well worth considering.

If you would like further advice on this matter then please contact me.

Key Facts:

  1. Relevant life premiums are not a taxable benefit for the director/employee
  2. Corporation Tax relief is available for the premiums in most cases
  3. Any payout under a relevant life policy will be tax-free
  4. Inheritance Tax savings are also possible
  5. Significant tax savings compared to Keyman or personal life insurance

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