How Does HMRC Treat Relevant Life Insurance?

I’m a Company Director needing Life Insurance. I spoke to an old colleague and they suggested Relevant Life Insurance paid for by my limited company. I was just wondering how Relevant Life Insurance is taxed by HMRC as I don’t want to set up a policy that creates tax issues!

Question asked by Mr R Jones
Compare Top 10 UK
 Protection
Insurers
 
Takes approx. 60 seconds
Type of Cover
Level of Cover
Date of Birth
Loading your options...
Thank you for using our Quote Tool
If you need some help, just call us!
T: 02074425880
Our in-house Experts are here to provide FREE impartial advice!
Our Experts can answer all your questions
Our Experts can send you more appropriate options based on your personal circumstances

Very important if you are either Self-Employed or a Company Director.

Our online quote tool is good but our Experts are better

Oue Experts have access to far more insurers and can often find a better deal offline.

Saves you time, let our Experts do what they are best at

Answered by Michael Englefield

 

How is Relevant Life Insurance Taxed?

It’s a very good question. We’re often asked how Relevant Life Insurance is taxed. As you say, it’s run through your limited company, which means your business will own the policy and pay the premiums, even though it will be underwritten based on your life.

This can lead to some confusion because it’s different from the way a personal policy is set up. These are paid for outside the company using post-tax income.

A Relevant Life policy, however, is paid for from company funds. Relevant Life Insurance is designed to replicate a Death In Service scheme but instead of covering a whole group of employees it protects an individual. Similar to a group scheme, premiums are eligible for corporation tax relief and as it is paid for directly by the business there is no income tax and National Insurance.

Example Savings

Personal Life Cover
Relevant Life Cover
Cost to Employee
Monthly Premium
£100.00
Employee NI Contribution
£3.45
Employee Income Tax
£68.97
Cost to Employer
Monthly Premium
£100.00
Employer NI Contributions
£23.79
Total Gross Cost
£196.21
£100.00
Less Corporation Tax*
£37.28
£19.00
Tax Adjusted Total Cost
£158.93
£81.00
Total saving by using a Relevant Life Plan = £77.93 (49.03%)
*Corporation tax of 19% in the 2018/19 tax year

HMRC does not treat Relevant Life Insurance as a P11D or benefit in kind, meaning there’s no additional tax to pay despite you having the premiums paid on your behalf.

The benefit is also paid tax-free. This is because, when you set up a Relevant Life policy, you write the policy into trust to keep it separate from both your business and your estate.

Keeping it separate from your business means there are no tax complications if you pass away and the money is paid back into your company. Holding the money outside your estate, meanwhile, means your estate won’t be liable for inheritance tax on the payout and your loved ones can get access to it faster, without having to go through probate.

To qualify for tax relief, the policy must be wholly and exclusively for the benefit of the business and not seen to be solely to avoid tax. Check with your accountant for more detail.

Relevant Life Insurance
 
HMRC
 
Relevant Life Policy
 
Tax
 
This information does not constitute financial or other professional advice. You should consult your professional adviser or contact us directly on 02084327333 should you require financial advice. It is important to ensure any insurance policy you take out is suitable for your needs.
Compare Top 10 UK Business Insurers

Frequently Asked Employee Benefits Questions

 
I’ve been looking into providing Critical Illness Cover for my employees, but do I have to pay...
 
We are considering setting up a business health insurance scheme for our employees and want to know they...
 
Could you explain to me a little but about how Group Life Insurance is taxed? I’m thinking of introducing...
 
We are looking to take out health insurance for our employees but are unsure on if an insurer will provide...
Need Help? Live chat now and get an instant answer from our Experts...

Neil
Pensions

Victoria
Insurance
Our Latest Reviews
Matthew Draper
11/07/2018

Excellent service at convenient times of the day specified by me. All product options were clearly outlined and I am very pleased.

Paul Devine
10/07/2018

First class service. Helped me through the process from start to finish. Egle and Francis were very professional and talked me though all my options. Once the policies were set up, the after care after was also first class. Highly recommend. 5 stars all day long.

Josip Marjanovich
03/07/2018

Victoria was very helpful about selection of suitable insurance. She always answered all questions in a timely manner.

We are rated 4.9/5 based on 1512 independent client reviews.
To read more of our independent client reviews click here →
REVIEWS
EXCELLENT
4.93 / 5 Average
652 Reviews
Verified Buyer
Overall Rating
The whole process was a pleasure. Drewberry we're easy to deal with, polite, knowledgeable and helpful
Verified Buyer
Overall Rating
Very good, clear service would recommend to friends and family
Anon
Overall Rating
Sam Carr provided an efficient and professional service.
Verified Buyer
Overall Rating
Sam Carr provided a professional but enthusiastic service and helped make the whole process very straight forward. Goodness knows I have been through enough application forms recently. My insurance product was never going to be easy to find and I had been rejected on a number of other occasions through others ironically due to well managed common health conditions. I identified Drewberry in a last and disappointing trawl on th web to find someone that actually wanted to take on a difficult case like me. Some brokers wouldn't even consider me. When we applied for my first choice product Sam wasn't at all deterred by the long wait for my GP report or the final rejection that came back from the insurer, sadly I have become used to it. Within a day he had lined up the second choice and to my surprise he had hit the nail on the head and introduced me to the correct insurer and terms for my needs whilst nogotiating an excellent premium. I am extremely satisfied with what Sam has achieved for me and I would have no hesitation in recommending either him or Drewberry to friends, family and and business contacts. In the future, Drewberry will be my first point of contact. Many thanks!
Kym
Overall Rating
Tailored to my need and the staff gave very good service