Tax efficient Life Insurance
If, as an employer, you pay for standard life insurance for a director or employee, it counts as a taxable benefit in kind.
Relevant Life Policies
An RLP runs for the number of years decided on when the policy is taken out.
The policy pays out if the director or employee dies while they are in their job and their employer pays the premiums.
RLPs can also be set up to pay out if the director or employee is diagnosed with a terminal illness.
The amount paid out, which is also tax and NI free, is a multiple of the individual’s current remuneration.
Insurers will often allow directors and employees to convert their employer’s RLP to a personal policy if they leave their job, or move it to a new employer, without the need for fresh medical checks or amended premiums.
Employers can use “relevant life policies” – premiums paid for these don’t count as taxable perks.
Inheritance tax Implications
RLPs can be put in trust. This means a pay-out won’t be part of the individual’s estate and is not liable to Inheritance tax. The insurance company or broker will usually suggest a trust arrangement, but check to make sure.
You can pay premiums to RLPs for directors and employees. These don’t count as taxable perks and the premiums are tax deductible from your business profits. An RLP premium of £800 paid by a company would save £709 in tax and NI compared with a standard life policy.