The potential savings from relevant life policies
A little-known type of life assurance policy could provide you with highly tax-efficient life cover.
It is easy to see the appeal of life assurance with:
- The premiums paid by your employer.
- No income tax or national insurance contributions to pay on the premiums by the employer or employee.
- No pension lifetime allowance limits to worry about.
- No pension annual allowance issues.
- Benefits on death or diagnosis of a terminal illness payable under a flexible discretionary trust to your nominated beneficiaries.
- All payments normally free of inheritance tax.
These are all features of a special type of life assurance policy known as a ‘relevant life policy’ (RLP). RLPs are especially useful for: small companies that do not have enough employees to set up a group life scheme; directors and senior employees who require life cover that won’t eat into their available lifetime allowance; employees who wish to top up benefits from their existing employer’s scheme, and; directors who want to set up an employer-financed shareholder protection arrangement.
The savings from using an RLP rather than setting up personal cover and funding premiums from net pay can be significant. For example, a higher rate taxpaying director who needs £500,000 of cover costing £1,000 a year in premiums could almost halve the employer’s cost. RLPs are subject to some special rules. For example, the policy cannot run beyond the employee’s 75th birthday.
For more details of RLPs please contact us.
The Financial Conduct Authority does not regulate tax and trust advice. Levels and bases of taxation and tax reliefs are subject to change and their value depends on individual circumstances. Tax laws can change. Occupational pension schemes are regulated by The Pensions Regulator.
The information in this article does not constitute advice and should be used for informational purposes only. This content has been provided to Helm Godfrey by Taxbriefs.