Relevant life plans can save you up to 49% on your Life Insurance Cover. (*)
Put simply, this is Life Insurance, paid for by your company, but for the benefit of your family. It is now also possible to add Critical Illness cover to such plans.
There are many good reasons to choose a relevant life plan, but the main benefit is ‘tax-efficient’ protection for directors and employees.
Here are the reasons to choose a relevant life plan:
• The benefit won’t form part of an employee’s lifetime pension allowance.
• The premiums won’t form part of their annual allowance. So an employee can still make full use of their annual allowance to contribute to a registered pension scheme.
• The taxman doesn’t normally treat premiums paid by employers as a benefit in kind. This means employees don’t have to pay income tax on the premiums.
• Nor are the premiums usually assessable for employer or employee National Insurance contributions.
• If the taxman is satisfied the premiums qualify under the ‘wholly and exclusively’ rules, the employer can treat them as an allowable expense for corporation tax.
The benefits are paid through a discretionary trust. They’re usually paid free of inheritance tax because the payout isn’t part of the employee’s estate. But the trust will be subject to normal inheritance tax rules for discretionary trusts.
Sometimes this may result in the following charges:
• Up to 6% of the value of the trust fund on each 10th anniversary of the date the trust was set up (the periodic charge). There will only be a periodic charge if there’s a value held in the trust at the 10th anniversary. This could happen if, for example, the employee died shortly before the 10th anniversary and the benefits hadn’t been distributed to the beneficiaries.
• Up to 6% of the value of the trust fund when it pays out to a beneficiary (the exit charge). Under current legislation it’s possible to avoid these charges by splitting the cover into several smaller plans each written under trust on different days.
By doing this each trust will have its own nil rate band. As long as each plan has an amount of cover which is less than this no charges should arise.
*Assumes 40% tax-paying employee and 20% corporation-tax-paying company and payment is acceptable to local tax inspector as trading expense. Tax rates 2015/16.
Please contact one of our corporate advisers to discuss your specific business and protection needs.
Contact one of our Protection Specialsts for a personalised illustration.
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