Previously most business owners have had to fund protection policies from personal post-tax income or alternatively suffer tax on what would generally be regarded as a P11D benefit. Relevant life plans have transformed that market in recent years and a further development has made them even more attractive.
The following is provided for information purposes only and we recommend that professional independent advice is taken prior to making any decisions or taking any action.
Relevant life plans
Relevant Life plans are a tax-efficient life insurance policy, allowing businesses to offer a death-in-service benefit to its employees (including salaried directors).
It is established by the company and pays out a tax-free, lump sum on the death (or diagnosis of a terminal illness) of the person insured.
The proceeds go directly to the employee's family or financial dependants.
It is particularly beneficial for the following:
- Company directors
- High-earning executives who may exceed their personal pension lifetime allowance (as proceeds do not count toward the allowance)
- Businesses too small for a group life scheme
- Members of group life schemes who want to top up their benefits
These policies have become very popular in recent years as they provide a tax-efficient and cost-efficient way for cover to be provided, particularly for company directors.
They are not taxable on the individual and the premiums can usually be claimed as a tax-deductible business expense. This structure can make a saving of nearly half in terms of the net cost.
They can also feature guaranteed premiums (so you know the premium will not alter) and the benefits are also usually free from inheritance tax.
A new development
The above has highlighted why the plans have been so popular over recent years but there has also been a very recent development – the ability to add critical illness.
Historically policies only ever provided life cover but now there is the option to add critical illness cover.
This is a market first and the initiative will have a large impact on the protection market – with the ability to offer a very tax-efficient way of implementing such cover.
Argent Wealth have helped clients implement relevant life plans and are always happy to provide example illustrations so business owners can see the difference it could make to their protection planning programme.