Relevant Life Cover is a financial instrument that provides a safety net for your family and dependents, offering them financial security during challenging times. Our Exeter chartered accountants are very conscious of the implications of the cost-of-living crisis and, as such, will be focusing our next few blogs on the tax efficient ways to remunerate yourselves as limited company directors.
In this blog, we will discuss relevant life cover in greater detail, as well as some of its main benefits. It is important to emphasise that we are simply pointing out the tax advantages, and we recommend you take advice from an Independent Financial Advisor (IFA) before setting up a policy.
Safeguarding the financial future of loved ones is always a top priority for you as company directors. One effective solution could be relevant life cover, a life insurance policy designed specifically for directors and key employees. In addition to providing financial security, relevant life cover offers attractive tax benefits in the United Kingdom.
A significant benefit of relevant life cover is its tax efficiency. Unlike conventional life insurance policies, where individuals typically pay premiums using after-tax income, directors can pay premiums through their companies. As a result, the cost of premiums is considered a business expense and so is deductible from the profits of the company. Also, as you as directors do not need to withdraw funds from the company to pay premiums, it could also potentially reduce any personal tax due.
Another advantage of relevant life cover is the exemption from National Insurance contributions (NICs). The company can pay for the premiums, which are tax deductible, and at the same time the premiums paid are not classed as a P11d benefit. So, neither the company, director or employee with a policy will have a tax or National Insurance liability on the premiums paid.
Relevant life cover can also help you as directors and your employees mitigate your inheritance tax (IHT) liabilities. The proceeds from a relevant life policy are typically paid into a discretionary trust, ensuring that they are not included in the director or employee’s estate for IHT purposes. Consequently, the funds can be passed on to beneficiaries free from IHT, safeguarding wealth for future generations.
One caveat to the above being that in rare circumstances, as any claim would be paid into trust, there could be a periodic or exit charge depending on when the claim is made. The charge would be very rare and, in most cases, would not exceed 6%.
Relevant life cover provides a range of tax benefits for you as limited company directors and potentially your employees. From tax-efficient premiums, exemption from National Insurance contributions and potential inheritance tax savings, this insurance solution could be a prudent financial choice for you as directors seeking comprehensive life cover while optimising your tax positions.
That said, it is crucial to consult with a qualified IFA to understand how relevant life cover can specifically benefit your individual circumstances and ensure compliance with current tax regulations.
If you’d like to learn more about Relevant Life Cover and its tax-related benefits, or if you have any questions regarding our comprehensive accounting packages, get in touch with our knowledgeable team of chartered accountants today on 01392 360008 or via email at dan@sidaways.co.uk.
Daniel Routcliffe FCA CTA
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Dan Routcliffe
Email: dan@sidaways.co.uk
Tel: 01392 360008
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