Life Assurance through Ltd

[Andrew@Wisteria]

We were reviewing our cover after buying a house and our advisor suggested that having my policy owned & paid by the company was the best deal and crucially is not classed as a BIK. I don't recall seeing it discussed on CUK which seems odd as many/most contractors surely have life/accident/illness cover of some sort.

Any experts want to advise here for posterity?

Life assurance for director is tax deductible subject to max cover levels (20 x remuneration, including benefits and Dividends (up to age 40), 15 x remuneration (age 40 to 59) and 10 x remuneration (age 60+)

[geoffreywhereveryoumaybe]

Anyone recommend a product for contractors

Very interesting - anyone know of a good provider with a suitable product for contractors?

[geoffreywhereveryoumaybe]

Relevant Life Policies

Thought it was interesting but did nothing about it for a year!

So contacted my accountant to see if this kind of policy was tax deductible.

His answer was that it was tax deductible as long as the company was the beneficiary and not me or the family.

Which seems to contradict earlier postings?

[Craig at Nixon Williams]

Thought it was interesting but did nothing about it for a year!

So contacted my accountant to see if this kind of policy was tax deductible.

His answer was that it was tax deductible as long as the company was the beneficiary and not me or the family.

Which seems to contradict earlier postings?

If it is a relevant life policy then it's set up through a trust, and the beneficiary would be your family. This type of policy would be tax deductible.

I'd get your accountant to double check.

Craig

[speling bee]

If it is a relevant life policy then it's set up through a trust, and the beneficiary would be your family. This type of policy would be tax deductible.

I'd get your accountant to double check.

Craig

I had to send my accountant the relevant HMRC web link which was a bit disappointing.

[geoffreywhereveryoumaybe]

HMRC Lin

Thanks -will follow your advice. Is this the link: EIM15021 - Employer-financed retirement benefits schemes: definition of 'relevant benefits' and 'excluded benefits'

[Freelancer Financials]

If it is a relevant life policy then it's set up through a trust, and the beneficiary would be your family. This type of policy would be tax deductible.

I'd get your accountant to double check.

Craig

I concur with Craig. It has been known for accountants to question the legality of Relevant Life policies or query exactly how they work. They fail to see how the premiums can be treated as an expense.

To help accountants understand, we’ve clarified the machinations of the policy and put together these explanations that talk in their language.

Benefit in Kind and Corporation Tax Relief

When pensions were simplified, the premium for this type of protection was removed from “charge to income”. In other words, it does not count as taxable income.

Rather, higher rate taxpayers could greatly reduce their tax liability, assuming that their company pays 20% Corporation Tax.

The Relevant Life policy benefits from the “wholly and exclusive” guidelines. Interpreted for the layman, this means that there’s a level of ambiguity, thus the premium cannot be earmarked as 100% definitive.

Insurers take the stance that, providing the policy can be proven to contribute to the employee’s remuneration package, said policy becomes “wholly and exclusively” a business transaction.

Relevant Life is still relatively new to market, so there’s little guidance in existing HMRC manuals to add clarification, either. As a result, Relevant Life policies and their premiums are viewed in the same light as registered schemes and pension payments respectively.

HMRC guidance for keyman/person cover, dealing with insurance deductions for employees and key personnel, only hints at what we can deduct, as it tackles the issue solely from the company perspective.

What that manual does do, however, is point us in the right direction with “benefits paid direct to employees”. It documents much of HMRC’s guidance for pensions, with a manual of its own for company directors’ and shareholders’ contributions.

The result is that many accountants we speak to claim relief on the basis that:

it’s a legitimate part of the remuneration, the same as pension contributions;
it’s unlikely HMRC would ever investigate to this minutia level to take you to task.

The Sum Assured

The final surmountable barrier is the sum assured and how it doesn’t attract tax. But this is more easily explained, certainly in a language that both accountants and the layman will understand.

Relevant Life Policies are paid out through the trust nominated at the policy’s inception and goes directly to the beneficiaries. As such, the company faces no tax liability.

Neither is income tax due from the beneficiaries unless the arrangement somehow breaches the legal requirements. As the policy can’t be created without nominating an appropriate trust, the legal boundaries must be upheld to even get the ball rolling.

This combination makes a Relevant Life policy an extremely tax-efficient way for company directors and contractors to save during their lifetime and protect their loved ones should the worst happen.

If they still don't understand after reading the above, then you need to change accountants!

John Yerou
MD of Freelancer Financials