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Relevant Life Policy
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 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?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, particulary 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 in the legislation as to who benefits can be paid to. The use of the trust is the most practical way of ensuring these requirements 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. Using a trust also ensures that in most circumstances benefits are paid free of both income tax and inheritance tax.
Are there any limits to the cover I have?- The
cover must be paid in a single lump sum before the age of 75.
- Only
Death benefits can be provided.
- Benefits
must be paid through a discretionary trust.
- Beneficiaries are normally restricted to family members and dependants.
- 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 Ltd 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
Firm Reference 311612