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 able to save Corporation tax on the premiums.
Taking out life cover to ensure your loved ones are financially secure should the worst happen 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 pay-out in the event of your death would usually be subject to tax.
The alternative was to take out personal life cover, so that any pay-out would go to your loved ones tax-free, but then if your company pays the premiums they would be classed as a taxable benefit and entered on a form P11D, with personal tax and Class 1A National Insurance being triggered.
However, Relevant Life Insurance manages to achieve the best of both worlds, with the company paying the premiums and getting Corporation Tax relief on these as a business expense, but with no taxable benefit for the Directors and employees concerned, and usually with no tax to pay on any pay-out under the scheme. There are even Inheritance Tax advantages available too, plus any pay-out doesn’t count towards the pensions lifetime allowance unlike other life insurances.
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.
Some Relevant Life Insurance providers are also now offering significant illness cover in addition to life cover which will pay-out in the event of you being diagnosed with certain serious illnesses which might lead to your forced retirement. This offers a good alternative to normal critical illness policies which don’t enjoy the same tax benefits.
We work closely with business owners to find the most tax efficient way to structure their earnings from their company, and this falls squarely into that category, along with making pension contributions through their company, or getting an electric company car.
If you would like further advice on this matter then please contact me.
Key Facts
- Relevant life premiums are not a taxable benefit for the director/employee
- Corporation Tax relief is available for the premiums in most cases
- Any payout under a relevant life policy will be tax-free and goes to your loved ones
- Significant illness cover is also being offered with the same tax benefits by some providers
- Relevant life offers significant tax savings compared to Keyman or personal life insurance
For further advice on this matter, please contact me.
Related Posts
Cash ISA allowance will be reduced from £20k to £12k from April 2027
n a bid to encourage more people to save into stocks and shares, the current £20k per annum allowance for investing in ISA will be restricted to £12k per annum for investment into a cash ISA.
Mansion tax for homes worth over £2M from April 2028
As expected, a new High Value Council Tax Surcharge was announced which will kick in from April 2028 and apply to homes worth over £2m.
100% CGT relief for shares sold to employee ownership trust halved
Under current rules, if you sell more than 51% ownership of your business to an Employee Ownership Trust then there is a 100% relief, and no Capital Gains Tax has to be paid on the sale.
Permanent rates reduction for hospitality, retail and leisure
Two new, lower, multipliers will be introduced for these sectors from April 2026, in a bid to permanently reduce business rates for affected businesses.
NIC to apply to salary sacrifice pension arrangements from April 2029
As widely anticipated in the lead up the Budget, it was today announced that NIC will apply to pension contributions from April 2029, but only insofar as there will no longer be an NIC saving for employees and employers that sacrifice more than £2k pa of their salary to pay into a pension.
Mileage based electric/hybrid vehicle excise duty from April 2028
It was today announced that the government are introducing a new Electric Vehicle Excise Duty (eVED) from April 2028 which will impose a charge of 3p per mile.
100% first year allowance for new electric cars extended to March 2027
The Budget documents confirm that the current 100% capital allowance that applies to the purchase of new electric vehicles and charge points will be extended for a further year until 31 March 2027.
New first-year allowance of 40% for main rate assets from January 2026
It was also announced today that the government will introduce a new 40% first-year allowance for the purchase of main rate assets, to encourage investment, although this does not include the purchase of cars or second-hand assets.
Main rate writing down allowance reduced from 18% to 14%
Currently, assets which are not eligible for the Annual Investment Allowance or First Year Allowances, including hybrid cars, and second-hand electric cars, are subject to the main rate writing down allowance of 18% per annum.
£1M inheritance tax relief for business/agricultural assets will transfer
The Labour government announced last year that the current 100% Inheritance Tax relief for shares and other business/agricultural assets will be restricted to £1m from April 2026 and, unlike other Inheritance Tax allowances, it would not transfer between spouses.