If you’ve not heard of a Relevant Life Plan, it may be more familiar than you think. First introduced in 2006, Relevant Life Plans essentially provide life insurance through a company in a similar way to a personal life insurance policy but at a much-reduced cost due to tax efficiencies.
The solution has particular relevance to small businesses as it provides an alternative to the usual ‘death in service’ policies that employees are offered in larger companies, but which companies with fewer than five employees are excluded from.
Despite the fact that Relevant Life Plan’s are less well known than other life insurance products, it provides tax-free peace of mind to directors and employees, with significant savings on premiums when compared with similar personal life insurance policies.
How does a relevant Life Plan achieve better tax savings?
Relevant Life Plans are owned and paid for by a company as opposed to the insured individual.
The contributions for the policy are made by the company but rather than being treated as a benefit in kind, they are instead treated as an allowable business expense for the company. This saves the company corporation tax and it there is also no employer or employee National Insurance to pay on the premiums.
In combination, these elements ensure that relevant life plans are considerably cheaper than a personal life insurance policy taken out by an individual. What’s more, from a director’s point of view, this offers substantial corporate and personal tax savings.
What are the other benefits of a Relevant Life Plan?
In addition to the corporate and personal tax savings outlined above, RLPs offer a number of other benefits, and these include:
- Non-taxable benefit for employees – RLPs are not treated as taxable benefits in kind in the way that policies such as private medical insurance are
- Tax free pay out to beneficiaries – when RLPs are written into a relevant life trust for beneficiaries, Inheritance Tax is avoided – a significant consideration for anyone with a large estate
- Savings for high earners – RLPs may be more tax efficient than standard death-in-service benefits, which are considered a pension benefit for tax purposes. A death-in-service pay-out will be a multiple of salary and could exceed the personal pension lifetime allowance – with the excess incurring a 55% tax charge
Who can take out a Relevant Life Plan?
Relevant Life Plans are intended for use by employees, and this includes the directors of a business, making them particularly well suited to start-up businesses and SMEs generally.
However, they are therefore not available for non-employees such as Equity Partners of a Partnership, Equity Members of a Limited Liability Partnership, or sole traders. The cover also excludes shareholders of a limited company who are not employees or paid directors.
Further guidance about Relevant Life Plans
If you are wondering whether a Relevant Life Plan could be suitable for your business and employees, then we can recommend Katy Eatenton, an experienced specialist in financial protection, who will be happy to discuss your options.