Have Your Heard Of A Relevant Life Plan?

In the final of the Business Protection posts from me (for now), I will cover Relevant Life Plans.

Company Directors, can set up life cover for themselves (and employees of the business) that can be treated as a legitimate business arrangement, with the company paying the premiums, with the added potential of reducing the company’s Corporation Tax liability

Relevant Life Plans which provide life-cover can be taken out and paid for by the business and put in trust for the dependants or desired beneficiaries. The result of this being:

  • a lump sum can be paid to chosen beneficiaries on death within the policy term in the same way a personal protection policy (or a death in service scheme) would work

However:

  • there is no National Insurance liability
  • the premiums are not treated as a benefit-in-kind
  • there is no personal tax liability
  • there is a likelihood that these payments will be classed as allowable deductions for the business, which may help to reduce any potential Corporation Tax liability
  • the payments do not count towards an individual’s annual allowance for pension contributions or their lifetime allowance for pension savings

Example:

Following the death of Bob, and the liquidation of ABC ltd, Jo has set up a limited company on her own and decides to take out some personal life-cover. She pays £150 per month. She is a basic rate tax-payer. To earn the £150, Jo has paid £3.85 NIC and £38.46 income tax. Her company has paid NIC of £26.54. Less corporation tax, this premium has, in essence, cost Jo and her company £175.80.

If Jo’s company paid the premium, the net cost, less corporation tax would be £120 – a saving of £55.80 or 31.5% for Jo and the Company.

Jo’s company does well and she becomes a higher rate tax payer, the cost to her and the Company is now £235.45 for her to earn the £150 per month to pay the premium. If the Company paid however, it would still cost £120 – a saving of £115.45 or 49%.

The information contained within this document is correct as at 2016/17 tax year and is based on current government legislation. These can change.

Author: Alice Douglass, Grosvenor Consultancy Ltd

There are advantages and disadvantages to using all of these strategies and they depend on individual circumstances so don’t take action without seeking competent advice. Tax rules, rates and allowances are all subject to change. The Financial Conduct Authority does not regulate tax advice and some forms of offshore investments. The value of investments and the income from them can fall as well as rise and you may not get back the full amount you invested.

The information contained within this document is correct as at 2015/16 tax year and are based on current government legislation. These can change.

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