In this month's newsletter, we're shining a spotlight on a lesser-known but incredibly powerful financial tool: relevant life cover. You may not have heard of it, but relevant life cover could be the key to significant savings on life insurance premiums for both individuals and businesses alike. Put Life Cover on Expenses!
What is Relevant Life Cover?
Relevant life cover is a type of life insurance paid for by an employer, available within an employer-employee relationship. Unlike personal life insurance policies, which individuals typically pay for out of their net income after tax and National Insurance contributions, relevant life cover is owned and paid for by the company. This crucial difference unlocks substantial savings on premiums.
Tax-Efficient Savings
The tax efficiency of relevant life cover is what sets it apart. Because premiums are paid by the company, HMRC usually allows them to be deducted as a business expense, resulting in savings on corporation tax. Additionally, there are no employer or employee National Insurance contributions to pay on the premiums. These combined savings make relevant life cover significantly cheaper than individual policies.
Savings for Company Directors
For company directors who currently pay for personal life insurance from their own income, switching to relevant life cover paid for by the company can result in substantial savings. Basic rate taxpayers could save up to 31.5% every month on premiums, while those in higher tax brackets could save even more - almost 50% in some cases.
Tactical Taxation Benefits
Relevant life cover isn't just beneficial for individuals; it's also advantageous for businesses, particularly small start-ups. The corporation tax and National Insurance savings make it an attractive option, while providing valuable employee benefits without incurring additional tax liabilities.
Benefits for Employees and High Earners
Employees benefit from tax-efficient life insurance without it being treated as a taxable benefit in kind. For high earners with substantial pension pots, relevant life cover may offer a better alternative to standard death-in-service benefits, helping to avoid hefty penalty taxes.
Estate Planning and Inheritance Tax Solutions
Relevant life cover, when written into a relevant life trust, bypasses inheritance tax (IHT) as the payout never becomes part of the deceased's estate. This makes it an appealing option for individuals with sizable estates concerned about the tax implications of their passing. Moreover, it can provide beneficiaries with immediate cash to cover IHT liabilities, ensuring a smoother estate transition.
In conclusion, relevant life cover is a powerful financial tool that offers tax-efficient savings for both individuals and businesses, while providing valuable employee benefits and estate planning solutions. If you're interested in exploring how relevant life cover could benefit you or your business, don't hesitate to contact us for expert advice tailored to your unique circumstances.
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