What is relevant life insurance?
Relevant life insurance is a type of life insurance policy designed to
provide a tax-efficient way for small business owners to provide life cover for
themselves or their employees. It is a death-in-service plan and ceases with no
accumulated benefits if the employee leaves. It is not a pension scheme nor an
employer-financed benefit. The insurance policy would only pay out a tax-free lump
sum to the policyholder's chosen beneficiaries if the policyholder were to die
during the policy term. Several conditions must be met, and your chosen
provider should be able to advise you if the scheme qualifies.
Tax-free benefit
Providing that the Relevant Life policy satisfies the requirements,
then:
The Company can treat the
premiums as a business expense
Employees don't have to pay
benefit-in-kind tax on premiums
Likewise, they do not need
to go on a P11d for NIC
The premiums do count toward
any pension allowances
Payments to beneficiaries
are free from income tax and inheritance tax
Conditions required for tax-free status
HMRC states that it
must be an excepted group life policy to meet the statutory conditions. The
policy will be limited to paying a beneficiary should the insured die before
age 75. There cannot be any benefit directly to the insured, who must not be
able to surrender the policy for any value. It cannot be a scheme set up to
avoid tax.
Check carefully
If you are unsure if your policy will qualify, please ask the provider
first. It is critical to avoid it going on your P11d. A relevant life policy is
very different to health insurance which is a taxable benefit.