How a Relevant Life Plan can save you money?

Have you heard about a Relevant Life plan? Surprisingly many people including business owners have not and are therefore unaware of the potential benefits of this type of plan.

What is a Relevant Life Plan?

Relevant Life is a life insurance policy available to employers to provide an individual death-in-service benefit for an employee. It can help smaller businesses attract and retain high-calibre staff by offering them attractive benefits packages that are also tax efficient. It offers a tax efficient way for an employer to arrange Life Cover, with the benefit paid out to the employee’s family or financial dependants. It must meet legislative requirements so that the plan can qualify for certain tax benefits.

Relevant Life Plans are usually viewed as an allowable business expense by HMRC. This means that all premiums and paid benefits qualify for full Income Tax relief, National Insurance relief and Corporation Tax relief. Relevant Life Plans assume that the policy will be placed in a Discretionary Trust at the start, with the employee’s family or dependants as beneficiaries. The benefit will pay out to the trustees of the Relevant Life Plan Trust.

How is it taxed?

The following information is based on our understanding of current legislation, taxation law and HM Revenue & Customs (HMRC) practice, which may change.

There can be tax benefits for both the employer and employee.

Employer benefits:

  • Corporation tax relief (so long as the premiums are wholly and exclusively for the purposes of the business).
  • No National Insurance Contributions to pay on the policy payments paid to fund the relevant life policy.

 

 

Employee benefits:

  • No National Insurance Contributions to pay on the policy payments paid to fund the relevant life policy.
  • Can benefit from their employer making the premium payments and these aren’t subject to tax as a benefit in kind or remuneration.
  • Policy payments and benefits don’t count towards annual or lifetime pension allowances.
  • Can generally provide their family with a tax-free lump sum if the worst happens to them.

Also, the claim amount isn’t subject to any income tax, corporation tax or capital gains tax implications, where the relevant life policy is held in a trust.

Who is eligible?

The employee must be: • A UK resident • An employee of a business that resides in the UK, for example, directors on PAYE and salaried partners. Sole traders, equity partners of a partnership or equity members of a Limited Liability Partnership (LLP) are not eligible.

Relevant Life Plans are particularly aimed at: • Employers who wish to provide Life Cover for specific employees (for example high earners and directors) above those available in an employer’s group scheme. • Employers who are unable to take out group cover for their employees (for example the employer may have too few employees to be eligible for a group scheme).

So, in summary, this little known product can save you money as premiums could be reduced by up to 49% compared to a typical life policy if the employee is a higher rate taxpayer. For a basic rate taxpayer this figure could be up to 40%. A big saving indeed!

The need for professional protection advice has clearly never been more important and as this is a specialist area of advice it is important to seek out this information from an appropriate independent financial adviser. Richmond House Group has this specialist knowledge and are always available to answer your questions.

John Merrifield. Dip PFS, Cert CII (MP)

 

This information is provided strictly for general consideration only. No action must be taken or refrained from based on its contents alone. Accordingly, no responsibility can be assumed for any loss occasioned about the content hereof and any such action or inaction. Professional advice is necessary for every case.