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In the complex landscape of financial planning, company directors often seek innovative ways to secure their financial future while optimizing tax efficiency. One such avenue gaining popularity is Relevant Life Insurance (RLI), a tailored life insurance policy designed for the unique needs of company directors and key employees. In this blog post, we'll delve into the world of Relevant Life Insurance and explore how it can serve as a powerful tool for both financial protection and tax optimisation.
Understanding Relevant Life Insurance
Relevant Life Insurance is a type of individual life insurance policy specifically created for employees, including directors, who may not be eligible for traditional group life insurance schemes. Unlike traditional life insurance policies, RLIs are set up by employers on behalf of their employees and are considered an attractive benefit in the competitive talent landscape.
The Tax Advantages of Relevant Life Insurance
One of the key draws of Relevant Life Insurance is its favorable tax treatment, both for the insured individual and the company providing the coverage. Here's a closer look at the tax benefits associated with RLIs:
Premiums are very tax efficient
Companies can usually claim tax relief on the premiums paid for Relevant Life Insurance as a business expense. This provides an immediate reduction in the overall tax liability for the company, making it a tax-efficient way to provide life cover for key employees.
No National Insurance Contributions
Unlike other forms of employee benefits, such as salary increases or bonuses, premiums paid for Relevant Life Insurance do not attract National Insurance contributions. This can result in significant savings for both the employer and the insured individual.
Tax-Free Death Benefits
In the unfortunate event of the insured person's death, the payout from a Relevant Life Insurance policy is typically paid out tax-free to the beneficiaries. This contrasts with other types of employee benefits, such as death-in-service benefits, which may be subject to inheritance tax.
Inheritance Tax Planning
For company directors with substantial estates, Relevant Life Insurance can play a strategic role in inheritance tax planning. The payout from the policy is usually not included in the deceased's estate for inheritance tax purposes, potentially reducing the overall tax liability for the beneficiaries.
Who Benefits the Most?
Relevant Life Insurance is particularly advantageous for small to medium-sized businesses where key employees, including company directors, play a pivotal role. Here are some scenarios where RLIs can be highly beneficial:
Limited Companies
Directors of limited companies, especially those without access to large group life insurance schemes, can benefit significantly from Relevant Life Insurance. It provides a tailored and tax-efficient solution to meet their life insurance needs.
High-Earning Individuals
RLIs are attractive for high-earning individuals who may exceed the lifetime allowance for pensions. This allows them to secure life cover without affecting their pension contributions and still enjoy favorable tax treatment.
Estate Planning
Directors with significant estates can use Relevant Life Insurance as part of their broader estate planning strategy, ensuring that their loved ones receive a tax-free lump sum in the event of their demise.
Conclusion
In the quest for financial security and tax optimisation, Relevant Life Insurance emerges as a powerful tool for company directors. Its tailored nature, coupled with the attractive tax benefits, makes it a compelling option for businesses looking to attract and retain top talent while providing valuable protection for key individuals.
Getting professional advice is essential. It’s best to speak with an accountant or VAT expert for specific advice. Call our team on 03330 166559 or fill out the contact form.
