Tax efficient life insurance for limited company directors

If you’re considering taking out life insurance, you could save up to 50% on your premiums by setting up cover via your own limited company. This is a tax-efficient way of protecting yourself and your family.

Rather than paying for life cover personally, from post-tax income, HMRC will typically allow your company to offset the cost of premiums against its Corporation Tax bill.

In this guide, we explain what ‘relevant life’ cover is, and how it benefits limited company owners, both from a peace of mind and financial point of view.

Tax-efficient life Insurance – for limited company directors

Relevant life cover is similar to the death in service policies often enjoyed by employees of larger companies.

The policy itself is paid for out of company funds – where the employee (often a director) is the life assured. The cover is written in trust to benefit the employee/director’s beneficiaries should the worst happen.

This type of arrangement is popular with small limited companies who don’t have access to the type of group life schemes typical of large firms and organisations.

Importantly, however, you can only enjoy the benefits of a relevant life policy if you run a limited company, as the self-employed (sole traders) do not have an ’employer’ by definition.

Why is this type of life insurance so tax efficient?

a) For the limited company – premiums are treated as legitimate business expenses, and can be offset against the company’s Corporation Tax bill.

b) For you (the employee/director), you will not have to pay for the costs of life insurance from your post-tax income. Also, the premiums are not considered as a ‘benefit in kind’, so no income tax or NICs are payable on the amount of the benefit, nor do they need to be reported on your annual P11D. You can reduce the real cost of your life cover by around 50% if you’re a higher rate taxpayer, and around 40% if you’re a basic rate taxpayer.

c) For beneficiaries, in the event of the death of the person who’s life is assured, there will be no income or Inheritance tax to pay.

Important notes about Relevant Life policies

  • Only life cover can be included in this type of policy; not critical illness or disability cover. You would need to take out a separate policy to cover these scenarios.
  • In most cases, beneficiaries must be members of the life assured’s family, including dependents.
  • Policies will cover individuals aged up to 75 years.
  • The benefits of an RLP policy must only be paid via a discretionary trust (which will be set up by your IFA).
  • You can take out cover up to 20 or even 30 times your total income, which includes dividends, salary, and any benefits in kind. The total multiple varies between insurers.
  • The contributions do not count towards your pension allowance (annual and lifetime).
  • We have worked with Broadbench for many years. Broadbench provides dedicated independent financial advice to small limited companies. You can get in touch with them using the form below for completely obligation-free advice.

    Find out more about relevant life insurance

    Fill in your details to get a no-obligation quote from our dedicated partner, Broadbench. Please feel free to ask any questions at all about life cover, and the team will get right back to you.

    Your details will be securely sent to Broadbench and never used for any other purposes. Make sure you take independent professional advice before taking out any type of financial product.

    Last updated: 30th January, 2022

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