Relevant Life Policy A lump sum for an individual without the need to set up a registered group life scheme

Death in Service Cover

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LET THE TAXMAN PAY TOWARDS YOUR LIFE COVER!!

If you're a company director and you have life assurance in place to protect your family, you could be paying more tax than you need to.

Relevant life policies are a way of providing death in service benefits on an individual basis no matter how small your business is. They are not classed as a 'benefit in kind' so no tax payable on the premiums. In most cases the benefits are paid free of inheritance tax – provided the benefits are payable through a discretionary trust.

What are the benefits?

  • Although the company pays the premiums, they are not normally assessable to income tax on the employee as a benefit in kind. This can be a significant saving, particularly for a higher rate taxpayer.
  • Unlike a registered group scheme, the benefit will not form part of the employee's annual or lifetime pension allowance.

What are the advantages of using a discretionary trust?

  • There are restrictions in the legislation as to who benefits can be paid to. The use of the trust is the most practical way of ensuring these requirements are met. The beneficiaries who could be included are usually family members and dependants.
  • Having benefits paid through a trust ensures they cannot be taxed as part of the company's trading income, nor do they form part of the company's assets.
  • The trust is discretionary, allowing trustees to be flexible in who they pay benefits to. However the employee can advise the trustees of his or her intentions by completing a nomination form. Although this is not legally binding on the trustees, it helps to guide them. The trustees will normally be the directors of the company.
  • Using a trust also ensures that in most circumstances benefits are paid free of both income tax and inheritance tax.
  • You can apply for any amount of cover up to a maximum of £5,000,000.
  • The maximum cover is 15 times the employee / director's remuneration. This can include salary, regular dividends paid in lieu of salary and any benefits in kind.