Relevant Life Policy HMRC
How could a tax-efficient life insurance policy benefit you?
What does it mean, and what are the tax implications when moving your life insurance premiums from your pocket to your company expenses?
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Where HMRC stands on Relevant Life Insurance and why should consider it
A Relevant Life policy is a tax-efficient solution for providing death-in-service benefits to directors and employees. It’s recognised by HMRC as a compliant and advantageous option for businesses when appropriately implemented, allowing companies to offer life cover while ensuring significant savings for directors and employees. By paying premiums through the business, individuals can reduce personal expenses without incurring income tax or National Insurance contributions.
Unlike traditional life insurance, Relevant Life Insurance is not classified as a benefit-in-kind, meaning it doesn’t interfere with existing benefits or trigger unexpected tax implications. Additionally, HMRC permits businesses to claim Corporation Tax Relief on premiums, making it a financially efficient choice for limited companies.
One of the standout benefits is the tax-free payout. Held in trust, the funds remain outside the employee’s estate, avoiding inheritance tax and ensuring loved ones receive full financial support without restrictions. This makes it an ideal choice for directors seeking a cost-effective and secure way to protect their families.
Please note: All information provided reflects our understanding of current HMRC regulations. Tax laws and relief levels may change, so it’s always advisable to seek professional advice to ensure compliance and maximise the benefits of a Relevant Life Policy.
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FAQs
Am I eligible to take out a Relevant Life Insurance policy?
You must have a limited company to benefit from the tax savings that a relevant life insurance policy offers. If you do not have a limited company then standard Life Insurance will offer you the protection you need.
Do I get any money back if I don't die before the Relevant Life Insurance policy term ends?
No. There’s no cash value at any time. Just like standard Life Insurance at the end of your Relevant Life Insurance policy term you stop making payments and your cover ends.
Can my mortgage be covered with Relevant Life Insurance?
If you have an interest-only mortgage, your outstanding mortgage loan stays the same until you repay it at the end of the mortgage term. Level Relevant Life Insurance could cover this type of mortgage.
How does Relevant Life Insurance work? What do I need to know?
Like standard Life Insurance, it provides your loved ones with a large tax-free, one-off payment, or monthly payments if you pass away. It can be used to pay the mortgage off or help your family with living expenses. You are covered only for the duration (term) of the policy and cover only lasts while you keep up monthly premiums. Monthly payments can be reduced by combining this with a Critical Illness policy.
The key difference between Life Insurance and Relevant Life Insurance is that with Relevant Life Insurance the cost of the premiums is moved from your own pocket to your company expenses. This saves you tax and reduces the cost of your monthly premiums.
Additionally, this is not treated as a benefit-in-kind; the premium is not included as a P11D benefit, nor are premiums subject to National Insurance payments for the employer or employee.
There is significant tax relief with a Relevant Life plan and your business can claim Corporation Tax Relief on the premiums. Plus, the payout itself is tax-free.
Can I cancel my Relevant Life Insurance policy at any time?
Yes. You have a 14-day cooling-off period from your policy start date, or from when you get your policy documents (whichever is later), to change your mind. If you want to cancel within this time, we’ll refund any premiums you’ve paid. Remember, there’s no cash value and, if you cancel your policy, you won’t be able to make a claim.
What's the difference between Relevant Life Insurance and Over 50s protection?
The main difference is that Relevant Life Insurance is a tax-efficient term policy, so it covers you for a specific amount of time, while over-50 life insurance is a whole of life policy, so it covers you for the rest of your life.
Typically to take out a Relevant Life Insurance policy you need to be aged between 18 and 77 to apply, and your coverage stops at the end of the policy term. You choose a cover amount, and if you want your cover to remain the same, be protected from the effects of inflation, or decrease over time broadly in line with a repayment mortgage or loan. You can take out a single or joint life insurance policy.
If you’re not sure which one might be right for you, speak to a Broadbench financial adviser.