Relevant Life Insurance

Relevant Life Insurance – tax efficient cover for company owners

If you want to take out a life insurance policy to protect your dependants should you die, you could benefit from a ‘relevant life’ policy, which is paid for by your limited company, resulting in a significant tax saving.

Compare life insurance – paid personally vs. via your company

If you pay for a typical life insurance policy, out of personal salary or dividend income, the policy premium is paid out of income which has been heavily taxed.

Your company pays Corporation Tax @ 19% on its profits, and once you draw down money from the company, it will be subject to further personal taxes – either income tax (on salary), and National Insurance Contributions (if applicable), and/or dividend taxation.

However, with a relevant life policy, the premium is paid out of your company’s pre-tax profits – and is subject to Corporation Tax relief @ 19%.

This results in a significant personal tax saving – potentially over 50%.

No tax on the lump sum

In some cases, a typical life insurance policy may be subject to Inheritance Tax (IHT). However, a Relevant Life policy is set up in a discretionary trust, so no IHT will be payable by your beneficiaries.

Not a ‘Benefit in Kind’

The premiums, paid for by your company, are not deemed to be ‘benefits in kind’, and therefore do not need to be reported on your annual P11D form.

How much cover can I take out?

A typical relevant life policy will cover up to 20 times your annual income, although this varies between insurers.

For example, if you draw down £50,000 annually (in a combination of salary and dividends), you could achieve cover of up to £1m.

What if I want to close my company?

If you decide to stop contracting, and want to close down your company, you can transfer the policy to your new employer (assuming they’re willing to fund the premiums).

Alternatively you could transfer the policy into your own name – but this would mean the tax benefits discussed above would no longer be available.

help tailor a quote to fit within your budget. Cover can be relatively cheap, and this includes life insurance, so it can be great value for money.

To ensure you are offered the most competitive & comprehensive policy, your adviser will source quotes from a range of leading insurance companies.

Before purchasing a Relevant Life policy you should seek independent tax advice. We refer tax advice to our specialist advisor. Ask us for details if needed