17th August 2018
If you haven’t heard of Relevant Life Cover you are not alone. Designed as a tax-efficient way for SMEs to provide life cover for directors and employees, Relevant Life policies have slipped under the radar for many businesses. So much so that when Legal & General undertook an SME survey in 2017, just 30% of UK SMEs were aware of the availability of this type of policy.
So what is Relevant Life Cover and who can benefit? Put simply, Relevant Life Policies enable employers to provide death benefit for their employees. The person covered must be a UK resident and an employee of a UK business. This means that whilst any UK resident working for a limited company, including directors, can be covered; when it comes to sole traders and partnerships, as the owners/partners are not employees they cannot benefit from this type of policy, unless they are salaried partners. However, cover can still be provided to employees of sole trading and partnership businesses, providing a viable alternative for businesses which are too small to benefit from a group life scheme.
Interestingly, Relevant Life Policies may also be seen as an alternative/additional offering for those organisations which are large enough to be able to offer to group life schemes. Because registered group life schemes are included in pension legislation, the benefit forms part of the employee’s pension lifetime allowance. Relevant Life Policies sit outside pension legislation and therefore any benefit won’t affect the lifetime allowance. They may therefore be suitable for members of group life schemes who want to top up their benefits or as an alternative to a group life scheme.
Depending on circumstances, Relevant Life Cover can prove to be a tax efficient method of enhancing employee benefits. For a start the premiums, which for most policies are guaranteed and paid monthly, count as a tax-deductible business expense. Moreover, because the policy provides terminal illness and death benefits the premiums paid don’t count as a benefit in kind. And as Relevant Life Policies have to be written into trust, the benefits are usually free from inheritance tax, subject to periodic and exit charge legislation.
There is one other key benefit attached to Relevant Life Policies and that is their portability. Because separate policies are taken out for each individual, should they move jobs they have the option to take the policy with them; with their new employer taking on the responsibility for paying the premiums. In certain circumstances on change of jobs it may be possible for the employee to start paying premiums themselves but careful consideration should be given to any tax implications.
Thompson Jenner Financial Services Director Neil Sear commented “Whilst Relevant Life Policies may not be suitable for all businesses or individuals, where they are suitable they can provide a tax efficient way of enhancing the employee offering.”
If you would like to find out more or meet to discuss the financial services which we are able to provide, please contact Neil Sear at either our Exeter or Exmouth office on 01392 258553 or 01395 279521 to arrange a free initial meeting.
