Relevant Life. Is your life cover appropriate? Corporate & Employer Solutions

Transcription

1 Relevant Life Is your life cover appropriate? Corporate & Employer Solutions

2 As a company director, taking out a Relevant Life policy could be a tax efficient way of providing valuable life cover for you and your employees. What is a Relevant Life policy? A Relevant Life policy is an alternative way of providing death-inservice benefits for selected employees and key individuals for the benefit of their family, without the need to set up a registered group life scheme. The premiums under the policy are paid by the employer and usually treated as a business expense but without the employee deemed to have a benefit in kind (P11D benefit). Unlike a group death-in-service scheme, a Relevant Life policy is written on an individual basis but can also be arranged for selected individuals. Who is it aimed at? Relevant Life policies are suitable for: Small businesses that do not have enough eligible employees to warrant a group life scheme. Businesses that wish to retain key members of staff by offering additional benefits. High-earning employees or directors who have substantial pensions funds and do not want their benefits to form part of their Lifetime Allowance for pension purposes.

3 This can be particularly attractive in the following scenarios: Family owned limited companies Most families protect their dependants with some sort of life insurance. Many of those have smaller limited companies, for which a Group Life Scheme may be inappropriate. The majority of smaller business owners pay for their personal life insurance through earned income that has already been subject to tax and national insurance. The Relevant Life policy can be a more tax-efficient means of arranging death-in-service policies for key employees, as the policy should not represent a taxable P11D benefit on the employee. Larger limited company needing death-in-service for higher earners Even larger companies can benefit. Companies often wish to offer key individuals additional benefits to reward their service and to protect their families. In cases like these, the company can specify the employees to be offered the policy, whether they be directors, managers or staff that are highly regarded. This is a great employee benefit which helps retain quality staff. Why should I take out a Relevant Life policy An alternative way of providing death in service benefits for selected individual employees (such as yourself), without the need to set up a registered group life scheme A lump sum that may be payable to your chosen beneficiaries for your family protection needs. In addition to the above benefits, potential tax efficiencies include: No national insurance liability No benefit-in-kind liability The likelihood of the policy premiums being classed as allowable deductions for your business, which may help to reduce any potential Corporation Tax liability provided incurred wholly and exclusively for the purposes of the business The policy premiums do not count towards an individual s lifetime or annual allowances What is the maximum amount of cover I could have? The maximum cover will depend on your need but is usually 15 times the employee/director s annual remuneration. This can include salary, regular dividends paid in lieu of salary and any benefits in kind.

4 Case study Alan Jones is married with two young children and is considering taking out life assurance to protect them in the event of his death. He is an employee of NewCo Ltd. Alan can currently arrange a personal policy which he could finance himself out of his net pay, or NewCo Ltd can take one out on his behalf via a Relevant Life Policy which may be more tax efficient as demonstrated below. Even larger companies can benefit. Companies often wish to offer key individuals additional benefits to reward their service and to protect their families. Alan Jones paying life assurance personally ABC Ltd. Paying for a Relevant Life policy Monthly policy premium paid from post tax income 200pm Monthly policy premium paid by NewCo Ltd. 200pm Pre-tax income needed to fund 200 at No Income Tax, employee s or % Income Tax and 2% employee NI employer s NI payable Employer s NI contributions at 13.8% on No employer s NI contribution this amount of salary paid by NewCo Ltd. Total cost to NewCo Ltd and Alan Less Corporation Tax at 20% as an allowable Less Corporation Tax at 20% as the - 40 deduction. Salary and NI are allowable plan is an allowable deduction * expenses against Corporation Tax Total cost to Mr Jones and NewCo Ltd By receiving life assurance through the company using a Relevant Life policy, Alan Jones makes a saving of over 49%. *Note that to obtain corporation tax relief on the premiums paid they must be wholly and exclusively for the purposes of the business.

5 Are there any restrictions? The plan is restricted to providing life cover only and cannot contain any waiver of payment, critical illness or income protection benefits. It is not suitable for the self employed or equity partners or members of Limited Liability Partnerships, although their employed staff may be covered. The legislation does have some limits to qualify for the tax treatment: The policy must only provide for a single lump sum benefit payable on the death of the life assured before the age of 75 The policy must not be capable of having a surrender value i.e. the policy must not have an investment element Only lump sum death benefits can be provided Beneficiaries should be restricted to family members and dependents. Tax avoidance must not be the purpose or one of the main purposes of taking out the policy. Benefits can be be paid through a discretionary trust. How do I take out a Relevant Life policy? Please speak to a Barclays Corporate Wealth Advisor who will discuss the benefits and suitability with you in more depth, and arrange for the appropriate documentation to be completed. A Relevant Life policy is an alternative way of providing deathin-service benefits for selected employees and key individuals, for the benefit of their family.

6 You have sole responsibility for the management of your tax and legal affairs including making any applicable filings and payments and complying with any applicable laws and regulations. Tax rates and rules are subject to change and can depend on your personal circumstances. Barclays does not provide tax or legal advice and we recommend that you obtain your own independent tax and legal advice tailored to your individual circumstances. Barclays offers wealth and investment management products and services to its clients through Barclays Bank PLC and its subsidiary companies. Barclays Bank PLC is registered in England and authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered No Registered Office: 1 Churchill Place, London E14 5HP. Item Ref: IBIM0628/21615 October 2013