A look at Limited Company Expenses # 5: Relevant Life Policies
"What expenses are allowable in my Limited Company?"
This is perhaps one of the most frequently asked client questions, and understandably so. The tax burden of owning and operating a limited company is getting heavier. With Corporation Tax rates set to increase as well as tax on profit extraction (i.e Dividends) increasing next year, now is the time for owner managed limited companies to start taking stock of what expenses a company can claim for to offset against corporation tax, and the personal tax implications of any benefit in kind.
We're going to periodically look at different types of expenses in this series, including what is allowable, as well as why certain expenses are not allowable. We'll also be introducing you to some of our associates who can help in each particular field.
As always, these articles are for information only and do not constitute formal advice - should you wish for detailed, specific guidance, please contact us directly to discuss your circumstances.
Relevant Life policies provide life cover, through a discretionary trust, for the benefit of employees’ and directors’ dependents. They’re taken out and paid for by the employer. They are principally designed for
Small companies that don’t have enough members for a group scheme.
High earners who don’t want their group death-in-service lump sum benefits included in their lifetime pension allowance.
Employees looking to top up the benefits they get from their employer’s scheme.
Crucially though they are an allowable expense of the company, and not taxed as a benefit in kind on the employee. To qualify the expense under the ‘wholly and exclusively’ for business use rules, the premiums should be treated as part of the employee’s remuneration. A person’s remuneration package doesn’t represent just cash, but other benefits like death-in-service (group or single relevant life plans) and pensions.
Our friends at Northern Eagles Wealth Management have assisted many of our clients with Relevant Life plans, and Peter Hannington writes,
"Relevant Life Policies are the most Tax Efficient way for Directors to take out Personal Life Protection with the benefits being paid to whomever they choose to leave them too. The Tax Relief means that they are around 42% cheaper net than if the individual were to pay for it personally. The Insurers have incredibly generous underwriting limits compared to other company related policies meaning high sums assured can be taken out to terms beyond normal retirement age life"
Disclaimer : - This does not constitute formal financial advice and you should seek detailed specific guidance from a qualified IFA before taking such a policy, as well as discussing any tax implications wit ourselves.