By Ian Bavey, business protection expert at Seer Green Financial Planning.

Looking after the staff is one of the most important jobs of any business owner – and that means taking care of them in death as well as life.

A Relevant Life Policy is an alternative way of providing lump sum death benefits for an employee without needing to set up a costly group life scheme. They also represent a tax-efficient way of arranging death-in-service benefits for both employer and employee.

Generally, where an employer provides life cover for the personal benefit of a member of staff the cost of the premiums paid will constitute a benefit in kind (a non-cash benefit subject to income tax).

However, where an employer provides an employee with a retirement or death benefit – even where this is not included as part of a pension scheme – the provision is exempt from income tax. In other words, the premiums on a Relevant Life Policy will not constitute a benefit in kind as the policy will be providing retirement or death benefits. And there’s the added benefit for the employee that the payments of the premiums will not be subject to National insurance Contributions.

As for the employer, he or she should be able to claim tax relief on the premiums paid and there will be no income tax, corporation tax or capital gains tax implications when the policy pays out, provided the policy is held in a ‘Declaration of trust for a Relevant Life Policy’.

Typically, Relevant Life Policies are suitable for small businesses with not enough employees to qualify for, or feel the need for a group life scheme; some high-earning employees with substantial pension funds who don’t want their group life benefits to form part of their pension lifetime allowance; and members of group life schemes looking to top up their benefits.
The maximum sums assured with Relevant Life Policies is age dependent – from 25 times salary up to the age of 29, to 10 times salary for ages 56 and over, and most policies are portable and can be transferred into a personal plan on leaving employment. As ever, seek specialist expert advice first.

Gwent-based leading corporate pensions, business protection and financial planning specialists Seer Green. Contact Ian Bavey on Newport 01633 816522; email ian.bavey@seer-green.com

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