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Relevant Life Policy
(or Death-in-Service Benefit)

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. In most cases the benefits are paid free of inheritance tax - rovided 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.

What are the advantages of using a discretionary trust?

• There are restrictions as to whom the benefits of a Relevant Life Policy can be paid, but the use of the trust is the most practical way of ensuring these restrictions are met. The beneficiaries who could be included are usually family members and dependants.
• Having benefits paid through a trust ensures they cannot be taxed as part of the company's trading income, nor do they form part of the company's assets.
• The trust is discretionary, allowing trustees to be flexible as to whom they pay benefits. However the employee can advise the trustees of his or her intentions by completing a nomination form. Although this is not legally binding on the trustees, it helps to guide them. The trustees will normally be the directors of the company.
• Using a trust also ensures that in most circumstances benefits are paid free of both income tax and inheritance tax.
• You can apply for any amount of cover up to a maximum of £5,000,000.
• The maximum cover differs across insurers: for example, Bright Grey offer a figure up to 15 times the employee / director's remuneration. This can include salary, regular dividends paid in lieu of salary and any benefits in kind.

Are there any limits to the cover I have?

• The legislation does have some limits to qualify for the tax concessions, and to ensure these are met, it requires that:
• The cover must be paid in a single lump sum before the age of 75.
• Only Death & Terminal Illness benefits can be provided.
• Benefits must be paid through a discretionary trust.
• Beneficiaries are normally restricted to family members and dependants.

Who are relevant life policies suitable for?

• Company Directors that would like their company to pay for their life cover and offset the premiums against corporation tax
• Small businesses that do not have enough eligible employees to warrant a group life scheme.
• Directors of small limited companies that may be thinking of putting Key Person cover in place so that their company can pay the premiums on their cover
• High-earning employees or directors who have substantial pension funds and do not want their benefits to form part of their lifetime allowance.
• They are not suitable for the self-employed or equity partners, although their employed staff could be covered.

If you would like to request a quotation or free independent advice, then please click on the link below.