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, and therefore the 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 any business to take out this cover. The benefit will not form part of the employee’s lifetime allowance. (This is in respect of the value the employee’s pension fund). The premiums paid will have no impact on the employee’s annual allowance. In comparison to a protection policy taken out on a personal basis and paid for by you, the employer, there will be National Insurance (NI) savings for both you and the employee. The premiums you pay (as employer) for a Relevant Life policy will not constitute a benefit in kind, as the policy will be providing retirement (by way of terminal illness cover) or death benefits. Therefore, these premiums will not be subject to income tax.
The claim proceeds will not be subject to income tax or corporation tax. You 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. You must put the policy in trust. This would mitigate the risk of the benefits forming part of the employee’s inheritance tax (IHT) estate on death and help to make sure that 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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