RELEVANT LIFE INSURANCE
WHAT IS RELEVANT LIFE INSURANCE?
This is life insurance offered by your business for each individual employee. It allows a business to provide tax efficient life cover for their employees. The policy will pay out a lump sum if the life covered is diagnosed with a terminal illness or dies during the policy term.
This type of insurance is also known as death in service. It can help smaller businesses attract and retain high-calibre staff by offering them attractive benefits packages that are also tax efficient.
WHAT ARE THE BENEFITS?
There will be no employer national insurance contributions on premiums where fully employer funded and Corporation tax relief. It’s tax efficient for your employee as HMRC usually views the premiums as an allowable business expense for the employer and not a benefit in kind to the employee.
The employee has no capital gains tax, no national insurance contributions on premiums or benefits where they are fully employer funded. In addition benefits are not taxed as an employment income and therefore would not be included in their estate for inheritance tax purposes. In addition to the above, it is a tax free lump sum amount to the beneficiaries.
HOW DOES IT WORK?
The employer must be a UK resident business. The business can be a limited company, a limited liability partnership or a sole trader. The employee must be a UK resident working for the business, it does not include equity partners, sole traders and anyone who is self-employed. In order to put the policy in place, the employee must be aged between 18-73 and the policy must be written under trust to the employee’s beneficiaries or themselves.
If the employee dies or becomes terminally ill, then the trustees make a claim, the insurer pays the trustees and then the trustees can pay the employee if it is terminal illness or their beneficiaries in the event of death.