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

If you're a company director or shareholder and you have life insurance, 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' meaning tax is not payable on the premiums. In most cases the benefits are paid free of inheritance tax - provided the benefits are payable through a discretionary trust.

What are the benefits of Relevant Life Policies?

• The company pays the premium, which are not normally assessable to income tax on the employee as a benefit in kind. This can result in significant savings, 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 and the use of a trust is the best way of ensuring these restrictions are met. It is generally family members and dependants that can be included as beneficiaries. 
• By having a trust pay the benefits, it can be ensured taht 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, providing flexability as to whom they pay benefits. However, the employee should advise the trustees of their intentions by the use of a nomination form. Although not legally binding on the trustees, it helps to give them guidance. The trustees will normally be the directors of the company.
• By utilising a trust, in most circumstances benefits are paid free of 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.

Are there any limits to the Relevant Life Cover I have?

There are guidelnes in place showing limits that apply to be able to qualify for the tax concessions. 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.

How to get a personalised relevant life policy quote

To request a personalised quotation for a relevant life policy or simply for independent advice, get in touch with us today and arrange an appointment.