Keepers Accountancy's Blog

Guest Post: With a relevant life policy the benefits really do stack up!

  

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Note: This is a guest post from Ashley Law Crawley. If you are interested in writing a guest post for our blog, email Ben here.

If you’re a company director and you have life cover to protect your family, you could be paying more tax than you need to. With a relevant life policy, you could save up to 49% on your life cover costs.

What are the Benefits?

• Although the company makes the payments, they’re not treated as a benefit in kind, and so would not be included in your income tax assessments. This can be a significant saving, particularly for a higher or additional rate taxpayer.

• Unlike a registered group life scheme, the benefit will not form part of your lifetime pension allowance, and premiums won’t form part of your annual pension allowance.

• The payments may be an allowable expense for the company in calculating their tax liability, as long as the local inspector of taxes is satisfied they qualify under the ‘wholly and exclusively’ rules.

• High-earning directors and employees who don’t want their death-in-service benefits to count towards their lifetime pension allowance.

• Small companies with too few members for a group life scheme that want to provide employees and directors with tax efficient death-in-service benefits.

How much money can I save?

The cost of providing an ordinary, employee-owned life policy doesn’t stop with the premium. The additional tax payments mean the true cost to your company and to the employee is substantially higher. With a relevant life policy, payments aren’t treated as benefits so you can cut the cost of providing employee life cover by almost 50%. Compare the costs for yourself:

*Assumes that corporation tax relief at 20% has been granted under the ‘wholly and exclusively’ rules. In both cases we have assumed a payment of £1,000 each year for the life cover on an employee who is paying income tax at 40% and employee’s National Insurance at 2% on the top end of income. We have also assumed that the employer is paying corporation tax at the small profits rate of 20% and will pay employer’s National Insurance at the contracted in rate of 13.8%.

Contact us if you would like to know more!