Relevant Life Plan
A Relevant Life Plan is not just an insurance policy; it’s a tax-efficient strategy for businesses to provide death-in-service benefits for their employees, offering a unique blend of financial security and tax advantages.
Key Features of Relevant Life Plans:
- Tax Efficiency for Employers:
- The premiums paid by the company for a Relevant Life Plan are often treated as allowable expenses, reducing the employer’s tax liability. This presents a cost-effective way to offer valuable benefits to employees.
- No Impact on Pension Allowances:
- Unlike registered group schemes, Relevant Life Plans have no effect on the employer’s ability to contribute to or accumulate funds in their pension scheme. This means businesses can enhance their employee benefits without compromising pension contributions.
- Tax-Efficient for High-Earning Employees:
- For high-earning employees or directors with substantial pension savings, Relevant Life Plans offer a tax-efficient solution. Premiums are typically not subject to employee income tax, and the plan doesn’t contribute to annual or lifetime pension allowances.
- Inheritance Tax Benefits:
- Benefits paid out from a Relevant Life Plan are usually exempt from inheritance tax when paid through a discretionary trust. This ensures that the financial support reaches the intended family members and dependents without additional tax implications.
Who Benefits from Relevant Life Plans?
Relevant Life Plans are especially advantageous for:
- Small Businesses:
- Small businesses with a limited number of employees that may not qualify for traditional group life schemes can still provide substantial death-in-service benefits through Relevant Life Plans.
- High-Earning Individuals:
- Directors or high-earning employees looking to enhance their death-in-service benefits without impacting their pension allowances find Relevant Life Plans to be a suitable and tax-efficient solution.
- Group Scheme Members:
- Individuals covered by group life schemes who wish to supplement their benefits beyond the scheme’s limitations can opt for Relevant Life Plans.
Considerations for Eligibility:
To unlock the tax advantages of Relevant Life Plans, certain criteria must be met:
- The lump-sum cover should be arranged before the employee reaches 75.
- The policy should provide only death benefits.
- Benefits must be channeled through a discretionary trust.
- Beneficiaries are typically restricted to the employee’s family members and dependents.
Navigating the complexities of HM Revenue and Customs practice and tax laws requires careful consideration of individual circumstances and potential changes.
Consulting with a financial advisor can help tailor a Relevant Life Plan to your business needs, ensuring both financial security for employees and tax efficiency for the company.