The Relevant Life Plan market continues to grow yet most business owners are still not aware of their existence or of the many benefits that they provide.
There are near 5 million SMEs in the UK and most of them employ up to 10 people. Research recently carried out by a leading provider found that nearly two thirds of business owners have never heard of Relevant Life Plans.
Source: Legal and General Survey 2014
Most business owners would welcome ways to save money, wouldn’t they? This type of plan can provide a means of protecting life cover with an estimated saving of 50% versus a typical family protection.
Why have so many business owners not heard of Relevant Life Plans?
The main reason for this is that these plans need to be set up correctly to meet the legislative requirements. Without this then the policy is at risk of not qualifying for the valuable tax benefits and advantages.
The advantages of a Relevant Life Plans Policy.
In my experience, most business owners can see the benefit of insuring themselves and protecting their families in the event of their death. Business owners also like the idea of paying less tax. Each case, however, should be viewed on an individual basis to ensure that this solution is the most suitable plan available.
When discussing the merits of a Relevant Life Plan with business owners it sometimes is received as a moment of revelation. An example of this is where I met two directors who were paying contributions of nearly £300 per month from their salary. I restructured their cover so the company paid for the cover via Relevant Life Plans. The end result was a saving of £140 per month and a higher level of cover.
This article represents our understanding of law and HM Revenue & Customs practice as at September 2017.
I have outlined some of the advantages of the Relevant Life Plan below. These aren’t the only advantages but are the points that business owners have seen as main reasons for accepting my recommendations for Relevant Life Plans:
- The death benefit (including terminal illness benefit) will not form part of the employee’s pension lifetime allowance.
- Subject to satisfying the “wholly and exclusively” test, premiums paid by the employer can be treated as a business expense for tax purposes.
- Premiums paid by the employer are not treated as a benefit in kind for, or otherwise taxable on, the member (life assured).
- The premiums paid do not form part of the employee’s annual allowance i.e. the amount that can be contributed by or on behalf of an individual to any registered pension scheme
- Premiums are not assessable on the employee for national insurance contribution purposes.
- Any benefit payments are free of income tax.
When is a Relevant Life Plan Policy suitable?
- A Relevant Life Plan Policy may be suitable for those employers who, perhaps because of the smaller size of their business, do not wish to set up group arrangements for all their employees.
- A Relevant Life Policy may also be suitable when the employer wishes to provide tax efficient additional benefits to existing death in service arrangements.
How can a Relevant Life Plan Policy be set up?
Relevant Life Policies can only be effected by employers for their employees. Therefore the application must be completed by the employer. The employer can be a limited company, partnership, LLP or a sole trader.
Please do not hesitate to get in contact if we can be of any assistance.