A relevant life policy is a new type of tax efficient life insurance for directors and employees. The policy can be paid by their Limited company with the beneficiary being a named person, usually a partner, child or family member.
A relevant life policy is designed to provide cost effective life cover for:
- Higher earning Directors and employees who do not want their death-in-service benefits to form part of their lifetime allowance, and who have substantial pension funds.
- Small businesses who want to provide a level of company-paid life cover whether for an employee or director but do not have enough eligible employees to qualify for a group death in service scheme.
For example, a basic rate taxpayer paying £100 a month in life insurance premiums with a personal plan would need to earn £147.06 before tax and National Insurance. Including company costs, (for employer NI contributions) the overall amount payable would be an additional £20.29 NI before corporation tax therefore £167.35 gross.
Via a relevant life plan, there would be no costs from his/her personal income and the overall cost for £100 worth of cover would be £80.00 to the company following corporation tax relief at 20%. This is a saving of £53.88 or 40.24%.
From this it can be seen is that there are a number of significant tax-efficiency advantages to providing this sort of cover.