Relevant life Policies

Presented by Michael Cooke

2

Death In Service

• ‘Registered’ –

- Group Schemes

• ‘Non-Registered’

- Stand Alone Relevant Life Policies

Supporting the Family

• Company pays

• No P11D charge

• Normally corporation tax relief on premiums

• Generally tax-free benefits under trust

BUT

• Not available for a smaller companies

• Not available on a single life basis

• Can be inflexible

• Come under pensions scheme rules

• Lifetime allowance trap for high earners

• Premiums paid by the employer

– No P11D charge on the employee (S247FA04)

– No National Insurance Contribution charge on employee or employer

– Subject to the local inspector of taxes accepting that the premiums are 'wholly

and exclusively for the purpose of trade' as part of the remuneration of the

employee, they may qualify for relief as a trading expense.

– Do not form part of pension annual allowance

• Benefits paid

– (usually) tax-free under a discretionary trust

– Do not form part of pension lifetime allowance

Who is it aimed at?

High earning employees

- who don’t want their death-in-service benefits

forming part of their lifetime allowance

Smaller employers

- where there are too few employees for a group

scheme or just the directors are to be covered

Topping up other scheme benefits

- Where the holding group scheme is unwilling to

offer enhanced benefits

Premium required by Joe

Company Gross cost

Employees NIC @ 2%

Income Tax @ 40%

Employers NIC @ 13.8%

Total gross cost to company

£1,000

34

690

238

£1,962

Company Net cost

CT relief at 20%

Net cost of

392

£1,570

* Assumes 40% tax-paying employee and 20% corporation tax paying company. Tax rates 11/12

36% -saving

Premium now paid by company

Company Gross cost

Employees NIC @ 2%

Income Tax @ 40%

Employers NIC @ 13.8%

Total gross cost to company

£1,000

34

690

238

£1,962

Company Net cost

CT relief at 20%

Net cost of

392

£1,570

£1,000

NIL

£1,000

Assumes 40% tax-paying employee and 20% corporation tax paying company*Corporation tax relief on relevant life policies assumes payment is acceptable to local tax inspector as trading expense Tax rates 11/12

36% -49%

saving

Premium now paid by company

Company Gross cost

Employees NIC @ 2%

Income Tax @ 40%

Employers NIC @ 13.8%

Total gross cost to company

£1,000

34

690

238

£1,962

Company Net cost

CT relief at 20%

Net cost of

392

£1,570

£1,000

NIL

£1,000

200£800

Assumes 40% tax-paying employee and 20% corporation tax paying company*Corporation tax relief on relevant life policies assumes payment is acceptable to local tax inspector as trading expense Tax rates 11/12

What are the restrictions?

Part of the Royal London GroupA group of specialist businesses where the bottom line is always financial sense.

• Benefits must provide a lump sum on death before 75

• No surrender value

• No other benefits can be provided

• Benefits payable via discretionary trust to dependants

or charity

• Not to be set up for tax avoidance purposes

12

Setting Up RLP

Company Insures employee

de

pe

nd

ants

In the event of death

ONLY

dis

cret

ion

ary trust

Claim paid to trustees

How does the trust work?

Part of the Royal London GroupA group of specialist businesses where the bottom line is always financial sense.

Discretionary trust

• Paid to dependants at the discretion of the trustees

• Nomination form can be used

• No income tax

• Paid free of inheritance tax

Possible periodic charges may apply

• Must be issued under trust from outset

What cover?

Part of the Royal London GroupA group of specialist businesses where the bottom line is always financial sense.

• Normally the insurers will cover up to

20 x remuneration

Could include dividends, benefits in kind and bonus

They will also require proof of income for £2 million +

Can be level, or increasing

Do we have a replacement policy option?

• We don’t need one as it is a single life policy

• The trustees just appoint policy back to employee

• Better and cheaper than most group scheme options

Transfer to a new employer

Can the policy be transferred to a new employer?

• Yes – the new employer just pays the premiums

• We would suggest a change of trustees

Who is it aimed at?

Not just for directors of limited liability companies –but the life assured must be an employee of a:

• Sole trader

• Partnership

• Limited liability partnership

• Limited company

• Charity