How to use tax breaks to reduce the cost of your cover

Are you thinking of providing life cover  to your employees or buying it for yourself, as a company director? If so, why not do it in the most tax efficient  way – with a Relevant Life Plan?

What is a Relevant Life Plan?

It is a term assurance plan taken out by an employer to provide an employee  with an individual death-in-service benefit. The policy provides a lump sum benefit on the death of the employee or if the employee is diagnosed with a terminal illness within the term of the plan in a tax efficient way. The benefit is payable to the employee’s dependents or beneficiaries through an appropriate discretionary trust.

What happens to Policy Premiums?

An allowable deduction…. As premiums are paid by the company, they are normally considered an allowable business expense for the employer and are therefore tax deductible, provided they are wholly and exclusively for the purposes of business. There is no tax liability on the premiums for employer or employee.

Not a benefit in kind….

Premiums paid by employers are not normally assessable on the employee  as a benefit in kind, and are therefore not subject to income tax.

No contribution to National Insurance….

Premiums paid by employers are not normally assessable for employer or employee National Insurance contributions. Not part of the annual allowance…. Premiums paid do not form part of the employee’s annual allowance. The annual allowance is the amount that can be contributed by, or on behalf of, an individual  to any registered pension scheme with  the benefit of tax relief. The employee is  therefore still able to make full use of their annual allowance to make pension contributions to a pension scheme.

Is it Tax efficient?

Taking out a Relevant Life Plan could mean significant savings*; there are tax benefits  for both the employer and the employee.  (This is in contrast with typical life cover where the premium is paid from net salary and is tax inefficient).

*Potential savings depend on the individual…. personal circumstances. For basic rate taxpayers premiums could come down by 40%, for higher rate taxpayers by 49% and for additional rate taxpayers by up to 53%

What happens to Benefits?

Benefits do not form part of the employee’s lifetime pension allowance and a lump sum is paid tax-free to beneficiaries.Provided the benefits are payable through a discretionary trust, in most cases they are not subject to inheritance tax as the payment is not part of the employee’s estate.

If you want to find out about the savings you could make with the Relevant Life Plan and how you can make your existing life cover more tax efficient, please contact Key Life Financial Services on 020 7100 1765  or email: enquiries@keylifefs.com.