What Is Relevant Life And How Does It Work?

Relevant Life - Positive Impact Financial Services

Can the Tax Man Part Fund Your Life Cover?

The chancellor has been aggressive with tax changes towards small business owners who run a limited company over the last few years. The main change is the introduction of dividend tax for basic rate taxpayers.
You will be pleased to know that there are still some uncommonly used tax efficiencies available to limited company owners.
Today I am writing about how you can pay for your life cover tax efficiently as a limited company owner and you can even offer this benefit to your staff if you chose.

What Is and How Does it Work?

The contract is called “Relevant Life”.
A limited company can take out a life insurance of any member of staff or director and then write this in trust for the individuals beneficiaries.

Please see the following example:

I own a limited company. I can take a life insurance policy and then leave this in trust for my partner.

The company pays the monthly premiums. This is an expense to the business so saves corporation tax at 19%. This does not fall into P11D benefits so has no tax consequence on me as an individual.

In the event of my death, the life company would pay the policy into the trust established and then the trustees would pay this money onto my beneficiaries, in this case, my partner or children. This payment would be tax-free.

What is Relevant Life?

How Much Can I save?

Let’s say you are a basic rate taxpayer who pays themselves mainly by dividend income has life cover costing £50 pm currently.
To fund this from personal income the company would need to pay you £54.05 to cover the income dividend tax. Assuming 19% corporation tax in 2018/19, in order to pay a dividend of 54.05 the company would need to generate earnings of £66.73.
The same premium of £50 paid to a relevant life policy would be a business expense and reduce the corporation tax by £9.50. Considering the savings if £4.05 in personal income tax the total savings are £13.55 per month.
This may not sound significant but over a year it adds up to £162.60. Over a 20-year policy this could be £3,252 in total tax you do not have to pay. What could you or the business do with that money rather than it going to HMRC.
If you are a higher rate taxpayer, taking account of the additional income dividend tax, the savings would be £5,265 over a 20-year policy.

What Should You Do?

I have some other tax efficiencies to share with limited company owners so call me for a free no obligation review! At Positive Impact Financial Services, we provide an independent financial advice in this and in many other topics. I invite you to read more about commercial finance and financial planning on my website.

Mark Scott
Positive Impact Financial Services

Email: mark@positiveimpactfs.com 
Mobile: 07734 031799