For those working at large companies at a senior level, it is often a given that the company will provide a ‘package’ alongside the employee’s salary.
This can include dental cover, a car, discounted gym membership and life assurance amongst other things. These are often large group schemes set up by the company to provide the employee with additional benefits to ensure the company can recruit and retain the best staff.
But what do you do if you run your own Limited company? Do you just pay for these benefits out of your own pocket?
Enter the Relevant Life Plan.
A Relevant Life Plan is somewhat of a contradiction in terms. It can be thought of as an individual group scheme. A Relevant Life Plan is individual in the sense that it must be for one employee provided by the company they draw a salary from. Essentially an employer-employee relationship must exist. However, it is considered a group scheme for tax purposes and is tax deductible rather than being set up as a P11D benefit-in-kind (please note we are not tax advisors, and this must be discussed with your accountant/tax advisor).
In real terms, a Relevant Life Plan, can save as much as 50% in real terms when compared to a comparative product taken out personally.
This is because of where the premiums are taken from. With a personal life assurance policy, the premiums are paid from income that has been generated by the company and then paid to the employee. That means corporation tax and income/dividend tax has been applied. However, with a Relevant Life Plan, the premiums are paid by the company out of profit before corporation tax is applied, which currently saves 19p on the £1.
The company owns and pays for the Relevant Life Plan, but the funds are paid in trust to the beneficiaries. Guidance on this is given throughout the process.
For those who plan to sell or exit their business during the term of the cover, the concern may be that the policy will need to be cancelled at exit and a new policy taken out. This could be an issue where the individual has suffered a deterioration in health and in any case the individual will be older, meaning an increase in premiums.
This can be dealt with by converting the Relevant Life Plan into a personal life assurance policy at point of exit, meaning that cover can continue uninterrupted, with guaranteed premiums priced at inception and without the need for additional underwriting. This means that the tax benefit can be enjoyed for the length of involvement with the business without the worry that the premiums will be prohibitively expensive if redone later.
