Find the life insurance policy suitable for you
By Marie Nelson
If you have a business, that is, you are the shareholder in a company or a director, then you may be paying more tax on your life insurance than what is required. A relevant life policy will provide you a death benefit on an individual basis regardless of the size of your business. These aren’t classified as “benefit in kind”. This basically means that you don’t have to pay tax on the premiums. In majority cases the benefits are devoid of inheritance tax, keeping in mind the benefits are being paid through a discretionary trust.
There are some very pronounced advantages of relevant life insurance policies. Firstly the company will pay for your premium which will not be assessed to income tax on you as a benefit in kind. If you are in the high tax-paying block, then this will result in significant savings. Secondly, this is nothing like a registered group scheme. The benefit that you will receive will not be included in pension allowance for lifetime. Along with these, the fact that you will be using a discretionary trust for a relevant life policy will give you some added advantages. These are:
- When it comes to relevant life policy, there are restrictions on who can avail the benefits, thus using a trust makes sure that the restrictions are met. It is only your dependants and family members whom you can include as beneficiaries.
- When a trust pays the benefits, it is ensured that the benefits are not taxed as a part of the trading income of companies nor are they included in the assets of the company.
- The trust is discretionary in nature, meaning, it provides flexibility on who the benefits are paid. However, it is advisable that you inform the trustees about your intentions by using a nomination form. This helps the trustees, normally the directors of the company, to give guidance although this form is not legally binding.
- The benefits paid will be devoid of income tax and inheritance tax.
When it comes to the limit that a relevant life cover has, there are guidelines which apply for you to be eligible for tax concessions. The requirements for the application of this are:
- The cover for the insurance must be paid in a lump sum amount before an age of 75 is reached.
- The benefits that are provided would be only for terminal illness or death.
- Benefits are required to be paid through a discretionary trust.
- Beneficiaries are either direct dependents or family member.
Such life policy are relevant to you only if you have some specific business composition. These are:
- If you are the Director of a company and would like your company to pay for the cover of your life insurance in order to offset the premiums paid for corporation tax.
- If you are a part of a small business are there aren’t enough eligible employees to go for a group life insurance policy.
- If you are a high-earning director or employee and have substantial pension funds and you don’t want that your benefits be included in your lifetime allowance.
Thus you can see how relevant life policy can be beneficial for you and when.