Ernest Grant

If you’re a company director and you have life insurance in place to protect your family, you could be paying more tax than you need to.

Relevant Life Policies are a way of providing death in service benefits on an individual basis, no matter how small your business is. They are not classed as a ‘benefit in kind’ so no tax is payable on the premiums, unlike personal policies that are paid for by your business.

In most cases, the benefits are paid free of inheritance tax – provided the benefits are payable through a discretionary trust.

What are the benefits?

• Although the company pays the premiums, they are not normally assessable to income tax on the employee as a benefit in kind. This can be a significant saving, particularly for a higher-rate taxpayer.
• Unlike a registered group scheme, the benefit will not form part of the employee’s annual or lifetime pension allowance calculation.
• Counts as a tax-deductible business expense.
• Benefits usually free from inheritance tax.
• A Relevant Life Plan is designed to be written in a discretionary trust (usually called a relevant Life Plan Trust) at outset, with the employee’s family and dependants as beneficiaries. If the plan is not placed in trust at outset, you should seek expert legal and tax advice on the consequences of this.

Life Assurance plans typically have no cash in value at any time and cover will cease at the end of term. If premiums stop, then cover will lapse. Tax treatment depends on individual circumstances which are subject to change.