Getting a relevant life policy that is tax deductible is a dream for many business owners, self-employed, sole traders and limited company directors because it results in significant savings. However, the HMRC has placed specific criteria for what qualifies as a tax-deductible relevant life policy. A relevant life policy is a type of whole-of-life insurance policy that provides a lump sum to the policyholder’s beneficiaries upon their death.

In this article on relevant life policy tax deductibles, we will explore this topic in-depth and answer frequently asked questions.

What is Relevant Life Policy?

A relevant life policy is a type of whole-of-life insurance policy that provides a lump sum to the policyholder’s beneficiaries upon their death. This lump sum can be used to cover funeral expenses, debts and other financial commitments. The relevant life policy is designed to protect an individual’s family or dependents from the financial consequences of their death.

What are the Tax Benefits of a Relevant Life Policy?

There are many tax benefits that you can get from relevant life policies. Depending on the type of policy you have, there may be a tax-free lump sum paid out to your beneficiaries upon your death. As well as this, the premiums that you pay towards your policy are usually tax deductible from your income. This means you can reduce the amount of money subject to taxation and enjoy more take-home pay. If you are interested in knowing, you can always contact our team of expert financial advisers.

Reasons for Choosing a Relevant Life Policy

Every individual has different reasons for choosing a relevant life policy. Whether you are a company director, sole trader, self-employed or a business owner, a relevant life policy can help provide the financial security for your family that you need.

Limited Company director

If you are a limited company director, consider a relevant life policy, as it can provide peace of mind for your family. The premiums are often tax deductible from earnings, and the lump sum paid out upon death is usually free from inheritance tax.

Self-employed or Sole Trader

For the self-employed and sole traders, a relevant life policy can provide financial security for their families if anything were to happen to them. As the premiums are tax deductible, it can also be beneficial for reducing your taxable income.

Business Owner

If you are a business owner, a relevant life policy is a great way to protect your family if you were to pass away and provide peace of mind knowing that your family’s financial future is taken care of. Also, the premiums are tax-deductible, which can help.

How Does a Relevant Life Insurance Policy Work?

A relevant life insurance works by providing a lump sum that is paid out to the policyholder’s beneficiaries upon their death. The policy pays out when the insured individual passes away, with the amount being determined by the terms of the policy. It can provide peace of mind for business owners, self-employed individuals and sole traders in knowing that their family will be financially secure if something were to happen.

When it comes to getting the most value out of a relevant life insurance policy, there are a few things you should consider. First and foremost, you need to make sure that the policy is tailored to your specific needs and requirements. Taking into account factors such as age, health status, and other financial commitments can help ensure that you get the right level of coverage for your situation. In addition, it is important to shop around for the best rates and make sure you are not overpaying for your policy.

 

Types of Policies Available

In the UK, a relevant life insurance policy is a type of life insurance policy that is set up and paid for by an employer. It provides a death-in-service benefit to the employee or director named in the policy. Here are some key points about relevant life policies:

  • Death-in-service benefit: Similar to a ‘death in service’ benefit, a relevant life plan is an insurance policy that will cover your employees in the event of their death and offers a tax-efficient way of providing this benefit.
  • Tax Treatment: The tax treatment on relevant life insurance policies depends entirely on how they are set up and how the premiums are paid. If the policy is set up through a business, then corporation tax relief may be available against the premium payments made by the employee. The policy itself is also exempt from Inheritance Tax, meaning that any benefit payable under it will not be subject to Inheritance Tax. Additionally, any benefits paid under the policy are generally not subject to Income Tax or National Insurance Contributions (NICs) as long as they meet certain criteria.
  • Who can be covered: The employee must be a UK resident and employed by a UK-resident business. This includes company directors and salaried partners who are on the payroll.

Please note that while these policies can offer significant tax advantages, it’s important to ensure that they meet all the criteria established by HMRC in order to benefit from a tax-deductible status. Always consult with a tax professional or HMRC for the most accurate information.

What are the key criteria of a relevant life insurance policy for tax deductions as per HMRC?

Based on the information from the HMRC website, the key criteria for a relevant life insurance policy to be tax deductible are:

  1. The policy must be set up by the employer or the company and not an individual.
  2. The policy cannot be used to provide benefits in excess of what is reasonably required for an employee’s death in service or as a pension contribution replacement.
  3. The policy must name only one person, who is an employee or director of the company, as the life assured.
  4. The policy must be set up solely for the purpose of providing death-in-service benefits to the employee or director named in it.
  5. The employer must make a net contribution towards the premiums, and any private benefit derived from the policy must be incidental to its primary aim.
  6. There are indeed restrictions on how much money can be paid out by a relevant life policy tax-deductible. It will be better to consult a tax adviser for more information.
  7. The premium payments must be made from the company’s funds and not transferred from an individual’s account.

In conclusion, relevant life policies can indeed be an attractive option for business owners and directors who want to secure a financial safety net for their families while taking advantage of significant tax savings. However, it is crucial to ensure that the policy meets all the criteria established by HMRC in order to benefit from a tax-deductible status. Please consult with a tax professional or HMRC for the most accurate information.

Please note that tax laws can be complex and change frequently, so it’s always a good idea to consult with a financial adviser or HMRC for the most accurate and up-to-date information. Always consult with a tax professional or HMRC for the most accurate information.

 

Next Steps 

If you are considering a relevant life policy as an option for financial protection and tax savings, you should speak to a qualified financial adviser who can assess your individual needs and provide tailored advice. They will be able to assess whether this type of policy is the most suitable solution for you and recommend any further steps that may need to be taken.