A Relevant Life policy is a death in service arrangement, which provides a lump sum on the death of an employee within the term of the plan in a tax efficient manner. In many circumstances, small businesses will not have enough employees to qualify for, or need a group life scheme, therefore Relevant Life policies are an alternative to group life schemes. The benefit is payable to the employee’s dependants through an appropriate discretionary trust.
Relevant Life policies are written on a single life basis on the life of an employee, allowing the business to take out the cover. The benefit will not form part of the employee’s lifetime allowance (in respect of the value of the employee’s pension fund), and the premiums paid will have no impact on the employee’s annual allowance. Contrary to a protection policy taken out on a personal basis and paid for by an employer, a Relevant Life policy offers National Insurance (NI) savings for both the employer and the employee. Also, the premiums paid by the employer do not constitute a benefit in kind, as the policy will be providing retirement (by way of terminal illness cover) or death benefits; therefore, the premiums will not be subject to income tax.
The claim proceeds will not be subject to income tax or corporation tax. Employers should be able to claim tax relief for the premiums paid as long as the premiums meet the ‘wholly and exclusively for the purposes of the business’ test. The policy must be put in trust, which mitigates the risk of the benefits forming part of the employee’s inheritance tax (IHT) estate on death and helps to make sure the policy qualifies as relevant life.
At the end of the term of the policy, there is no maturity value and the policy will lapse.
THIS CONTENT IS FOR INFORMATION PURPOSES ONLY. YOU SHOULD SPEAK TO AN ADVISER BEFORE YOU TAKE OUT THIS TYPE OF POLICY AS THE ELIGIBILITY CRITERIA CAN BE COMPLEX.
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