Hi everyone,
today’s article is about getting a little love back from the Taxman.
If you’re a business owner, highly paid director or even just an employee who wants high levels of life cover, you could be paying more tax than you need to.
An innovative new product from insurer Bright Grey called “a Relevant Life Policy” provides death in service benefits on an individual basis no matter how small your business is.
What Are The Benefits?
Whilst the company pays the premiums, they would not normally be treated as a benefit in kind and therefore, not assessable to income tax. This represents a significant saving, if you are a higher rate tax payer. (That would be nice – the taxman helping pay for your Life Assurance, don’t you think?).
An additional advantage for high earners is that the lump sum benefits do not form part of the employee’s annual or lifetime pension allowance, which is 1.75m in 2009/10.
These payments may be treated as an allowable expense for the employer in calculating their tax liability, as long as the local tax inspector is satisfied they qualify under the “wholly and exclusively rules”.
Provided that the appropriate discretionary trust is used then benefits can be paid free of inheritance tax.
How Much Cover Is Allowed?
- The minimum term is one year and the maximum term is 40 years or to age 75 if earlier and must be paid as a lump sum.
- Only death benefits can be provided.
- Maximum cover is 15 times the employee/director’s remuneration. This is equivalent to providing up to 4 times salary as death in service benefits and up to 11 times as a lump sum to buy an annuity as an alternative to a widow’s or dependants pension.
- The maximum benefit is £5m and for sum assured over £1m a financial questionnaire is required.
Benefits must be paid through a discretionary trust and beneficiaries are normally restricted to family members and dependants.
Conclusion
This could be a very attractive proposition for some and to some extent it makes up for the loss of pensions life assurance, which was banned by the government when it proved too popular.
Whilst Bright Grey is the only provider to offer standalone RLP so far, I would certainly expect others to follow which would make it even more attractive cost wise. The combination of innovation, simplicity, tax efficiency and Bright Grey’s service makes this a very attractive proposition.
If you want to know more about this type of policy and whether it’s suitable for you, then please contact me on my free phone number – 0800 321 3508 or drop me an e-mail.
