The cost of providing death in service benefits for employees (including salaried partners) can be expensive, and for those businesses that do not have enough eligible employees to affect a group life scheme, this can be the perfect answer. This type of cover is also extremely effective for businesses with high-earning employees who have substantial pension funds and don’t want their death-in-service benefits to form part of their pension lifetime allowance.
A relevant life plan will pay out a tax-free lump sum if the employee passes away in employment, and the premium costs are a tax-deductible business expense. The result of this means that the costs can be as much as half the cost that it might cost each individual employee to arrange on their own behalf.
Relevant life insurance provides a straightforward, cost-effective and tax-efficient way for businesses to provide life insurance to directors and employees.
Relevant life cover is ideal for businesses where there are not enough staff members to warrant a group life insurance scheme. For many smaller businesses, this is used instead of a typical death in service arrangement.
For certain companies, this can also be used in addition to an existing death-in-service contract for certain employees.
From a tax perspective, the premiums paid by the company, qualify as a tax-deductible business expense, and there are no employer National Insurance (NI) contributions on the premiums paid.
Unlike many group death-in-service schemes, the proceeds on death do not count towards the pension lifetime allowance*.
As a result, this is likely to be of particular benefit to higher earners. From a tax perspective, premiums paid by the company do not count as a P11D benefit, and there are no employee NI contributions on the premiums paid.
The contract is very flexible; if the employee leaves service, the cover is often portable to a new company or a personal policy at any time.
Proceeds on death do not form part of the employee’s estate.
If you would like to discuss any of the above, please contact your usual Partners Wealth Management adviser, email us or call us on 020 7444 4030 for an initial conversation.
The table below compares the difference between a relevant life contract and the same level of monthly premium if this were paid by the employee. This assumes income taken as salary only, an income tax rate of 40%, employee’s NI rate of 2%, employer’s NI rate of 13.8% and corporation tax rate of 20%.
We understand the particular needs of business owners, directors and their families and provide advice on investments, pensions, retirement and tax planning.
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If you would like to discuss any of the above, please contact your usual Partners Wealth Management adviser, email us or call us on 020 7444 4030.
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