This note is about “Relevant Life Plans” – a very tax-efficient way of providing “death in service” cover for directors and employees – including controlling directors and salaried partners taxed as employees but not sole traders or equity partners. The attractive thing about these Plans is that although the premiums are normally fully tax-deductible for the employer they do not give rise to any “P11D”-type benefit taxable on the director or employee in question and there are no National Insurance implications either. These tax benefits can together cut the effective cost by almost 50% compared with the cost of a conventional life policy paid for by the employer.
Any lump sum (which can be payable on death or on diagnosis of a terminal illness) is of course free of both Income Tax and IHT. And because a Relevant Life Plan is not a pension arrangement, there is no risk of any part of any pay-out interfering with the pension pot limit (falling to £1.25m from next year) and as a result being subjected to tax at up to 55%.
We think this type of arrangement is likely to be attractive to (among others).
- Employers looking to provide “death in service” benefits, but with too few employees to set up a group scheme
- Directors of private companies who wish to set up individual “death in service” benefits without the need to create an “all employee” scheme
- Employees or directors (especially high-earning ones) who may want either to opt out of or top up their employer’s group life scheme.
For more details, please get in touch with your usual BKL contact or use the enquiry form below.