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’m in the HR department of my company and we’re considering introducing a company medical...
 
I’ve been looking into arranging Group Income Protection Insurance for my employees to provide...
 
I am a company director and I’m looking at benefits for some of my staff...
 
We have existing shareholder protection arrangements which might need to be extended, what is the maximum...
Need Help? Live chat now and get an instant answer from our Experts...

Neil
Pensions

Victoria
Insurance
Our Latest Reviews
Robert Eldridge
07/06/2018

Rauri was easy to talk to. Explained everything really well. Took prompt action when requested and was in touch when he said he would be without being pushy.

Attila Mako
07/06/2018

Excellent service. Oliver was very helpful and patient with me. He gave me knowledgeable advise describing the product details clearly. His communication was prompt and precise! Great customer service!

Ian Brett
26/05/2018

Josh made a complicated process easy and I was kept informed throughout. I will be recommending Drewberry to every one who asks and even those who don't.

We are rated 4.9/5 based on 1512 independent client reviews.
To read more of our independent client reviews click here →
REVIEWS
EXCELLENT
4.92 / 5 Average
1638 Reviews
D Gianfreda
Overall Rating
Friendly, efficient and professional service
T Bullock
Overall Rating
Friendly and professional
l kelham
Overall Rating
Excellent service, clear communication and advice
B Weller
Overall Rating
Very thorough service
E Portingale
Overall Rating
I had a short time to ensure I was covered appropriately due to change of circumstances and house move. I required a number of insurance policies for my new situation. I contacted Drewberry Insurance and found that they understood all of my needs and the best way to filter and sift appropriate insurers. They clearly understood the process...made everything very easy online and via telephone and always did as they said they would by actioning everything as and when requested. This took the time and confusion away from becoming insured. Their interaction and communication and explanation of all processes ensured I understood each stage of the process. Will recommend their services to anyone seeking insurance.