Here’s a lovely Life Assurance idea..
..how about the taxman pays around half of yours?
If you take out a Relevant Life Plan, then he (or she) will.
If you want to provide yourself and your employees with an individual death in service benefit that pays a lump sum if the individual insured dies or is diagnosed with a terminal illness, thena Relevant Life Plan (RLP) is something you should seriously consider.
Is it for you and if not why not?
If you’re an employer, looking to give the peace of mind that Death in Service cover can provide, but you don’t have enough employees to justify a group scheme, then a RLP could be just what you’ve been looking for.
If you’re a Director wanting your own individual Death in Service cover, without including your employees, then a RLP could be for you.
If you’re a high earning individual where Death in Service isn’t currently a part of your lifetime allowance of £1,055,000 (2019-2020), then considering an RLP could prove to be advantageous.
However, if your business is a sole trader, equity partnership or equity members of a Limited Liability Partnership, and doesn’t have an employer/employee relationship, then unfortunately a RLP won’t be suitable.
How does the tax saving work?
Almost all company directors who have some life assurance are paying the premiums personally. This usually this means that they are paying premiums out of pre-taxed income or they’re paying through their company and attracting a P11D benefit-in-kind penalty. However a RLP is paid directly by the company, with premiums allowable as a business expense. This obviously means that Corporation Tax Relief can be claimed and no Employer’s National Insurance is payable either. But that’s not all, the RLP policy does not count as a benefit in kind, so it doesn’t attract Income Tax or National Insurance payments either.
For example, the real cost of a £200 per month insurance policy, to a high rate taxpayer, after tax and NI is around £392 gross. By taking out a RLP, and paying premiums through the company, avoiding the income tax and NI; the remaining £192 produces an extra £98pm of net income available to the high rate taxpayer, whilst providing the same cover. This is a real saving of 49% and for a basic rate taxpayer; the saving is around 36%.
So why isn’t everyone doing this?
It seems like a no-brainer that anyone who falls into the category of qualifying for a RLP would immediately switch to one. So why aren’t they more popular?
The simple answer is most company directors and, I’m sad to say, their accountants simply haven’t heard of a Relevant Life Plan.
That’s possibly because when the RLP was originally launched, it was only offered by one provider and the message didn’t really get out to a wide audience. Fortunately for you, you read my blogs and I’m here to tell you all about it
Who can you talk to regarding a Relevant Life Plan?
Not so long ago there was only one company who spotted the opportunity to offer a RLP. Their unique approach took advantage of pension simplifications, which meant that due to the way that life insurance was set up under trust, and because the limited company paid the premiums, no benefit in kind issues impacted upon the director or employee.
Understandably other providers held back from entering the RLP market, whilst they waited to ensure that the legislation that the RLP took advantage of was robust and unchallenged. Happily, now that the principles have gone unchallenged, a further half a dozen or so big name providers have now also entered the RLP marketplace, which helps ensure that premiums remain low.
Let’s have a quick look under the covers
The first question people generally want answering is, how much cover can I have?
Just like any other Death in Service policies, the sum assured with a Relevant Life Policy is based upon a multiple of the insured annual remuneration. As a director, remuneration is based upon salary with the addition of dividends and the addition of any bonuses.
Depending upon the provider you pick for the RLP, the multiples may vary depending upon the age of the director being insured. Usually though, you can expect the range to be anything from 10 to 25 times remuneration. So get some independent expert financial advice, before picking your RLP provider.
Get the right advice
As always, if you have any questions regarding your current or future financial situation, especially regarding a Relevant Life Policy and which provider best suits your individual needs, then please contact us at Bridgewater Financial Services where we will be delighted to help guide you through your individual options and strategies.