Relevant Life Plans – Tax Efficient Life Cover for Smaller Businesses and Company Directors.
What is a Relevant Life Plan?
A Relevant Life Plan is a life assurance plan taken out by an employer on the life of an employee with the benefits paid to the employee. It allows employers to give staff death in service benefits in a tax-efficient way.
Like an ordinary Death in Service scheme the plan pays out a specified lump sum on the death of the person insured.
Relevant life policies are an alternative to group life schemes for small businesses. They can also be used to provide high earning employees, who already have substantial pension funds, with a lump sum that will not affect their pension lifetime allowance.
1. Premiums paid by employers are not a benefit in kind and are therefore not subject to income tax
2. Premiums paid by employers are not liable for employer or employee National Insurance contributions
3. Premiums are an allowable expense for the employer
4. Premiums paid will not form part of the employee’s annual allowance.
The benefit will not be part of the employee’s lifetime pension allowance.
The benefits are free of income tax.
If the plan is set up to pay via a discretionary trust, in most cases the benefits are paid free of inheritance tax. This is as the payment is not part of the employee’s estate. Please note there could be be tax within the trust as per the Taxation of Trusts rules.
The annual allowance is the amount that can be contributed to any registered pension scheme with the benefit of tax relief. The employee is therefore still able to make full use of their annual allowance to make contributions to a registered pension scheme.