Maximising tax benefits: Understanding Relevant Life Insurance for SMEs

As a business owner, you might be aware of the tax breaks that can help you save money. However, according to a survey of Small and Medium Enterprises (SMEs)*, 75% of them have not heard of Relevant Life, a legitimate tax break that can protect your loved ones in case of your untimely death.

What is Relevant Life Insurance?

Relevant Life is a type of life insurance that a limited company can take out on behalf of its directors or employees. It provides a lump sum payment to the employee’s family or nominated beneficiary if they die while in employment. This is similar to the death-in-service benefit that larger employers provide to their employees, but Relevant Life covers only one person instead of a group.

The premiums for Relevant Life are paid by the business and are considered a business expense, which means they are not taxed as income for the employee. Additionally, the benefit paid out to the nominated loved ones should be tax-free, including inheritance tax.

How does it work?

The company takes out a term insurance policy on the employee’s life, which is held in a discretionary trust for the loved ones. This means it is not part of the employee’s estate for inheritance tax purposes. The employee can nominate who they want the trust to pay out to and can also be a trustee.

Although there is no legislative limit to how much cover an employee can have, the insurers have their own limits, usually between 15-20 times the employee’s remuneration package. If the employee pays themselves a small salary and then dividends can be taken into consideration.

How do I know if it’s right for me?

We can help determine if Relevant Life Insurance is right for you and your business. We can consider your needs and the needs of your business and will help you weigh up the benefits, as well as make you aware of any risks that could apply. We will consider factors such as costs and provider service to help determine the right solution for you. If appropriate, we can help you make a proposal as well as explain any additional requirements the insurer may have, such as a medical report or tests which will depend on your age, the amount of cover, and your health.

Important Information

It is important to note that you should not cancel any existing cover until you know you can have the new cover. Quotes from insurers assume acceptance at standard rates, but the premium your company pays may be higher after underwriting. Additionally, any dangerous sport or pastimes can increase the cost. We will also discuss and consider if a Group Life policy may be more beneficial (if you have sufficient employees and you want to cover them).

In conclusion, Relevant Life is a legitimate tax break that can protect your loved ones in case of your untimely death. As a business owner, it is worth considering this option and consulting with an independent financial adviser to ensure you get the best advice and coverage for your business.

For more information, please contact me, Steven Clemence, on 01752 666601 (email steven.clemence@westcotts.uk) or contact your local Westcotts office.

*Source: Legal & General State of The Nation’s SMEs Report 2021 (the most recent one)