I have just been handed details of a Relevant Life Policy by Bright Grey (part of the Royal London Group) stating that it is allowable for tax purposes as an expense.
The literature appears to state that there will be no benefit in kind.
Has anyone come accross this or does it seem to good to be true?
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Replies (3)
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Relevant Life Policy
The information you have is correct, but then I am biased as I was involved in designing the contract.
This is a non registered death in service plan, but for tax purposes works in much the same way as a registered scheme, with the advantage that it can be set up on a single life basis (S393B(4) ITEPA.) These non registered schemes are the successor to the old non-approved schemes, however the old charge to income that they carried was removed as part of the pension simplification legislation (s247 FA04).
Benefits are paid to dependants free of income tax and IHT (in most circumstances) through a discretionary employer trust.
Relief should be claimed as part of the remuneration package of the employee in the same way pension contributions and registered scheme costs are claimed. I am not an accountant but my understanding is that no separate entry needs to be made.
For directors it should be noted that the cost of the cover should be reasonable in relation to the input of that director and with relation to similar businesses (as per pension contributions). For full time working directors I don't see this being a problem as the premiums will generally be fairly low in relation the companies overall expenditure. See BIM 45525 (life cover for employees) which directs you to BIM 4600 onwards for policies for the benefit of the employee in particular BIM 46035 for directors. This refers to pensions but the same rules apply to RLPs.
The other reply regarding key person policies is also correct for non-shareholding employees, (but not significant shareholding directors) however the benefits would be taxed as a trading receipt when paid into the company. RLP benefits are paid outside the company through the trust and are therefore not a trading receipt. Also the shareholding does not have the same relevance.
Not so much being too good to be true - just extending the same benefits large company employees can enjoy through registered group schemes to smaller companies.
Non registered schemes are much easier to set up than registered ones, and also have the advantage that the benefits don't accrue to the pension fund for lifetime allowance purposes. Very important for high earners.
These policies are not new - they have been around since 2006 but up until we launched this plan to the general market they were only used by some of the group risk providers to opt high earners out of their schemes, so were not generally known about.
Relevant Life Policy
The information you have is correct, but then I am biased as I was involved in designing the contract.
This is a non registered death in service plan, but for tax purposes works in much the same way as a registered scheme, with the advantage that it can be set up on a single life basis (S393B(4) ITEPA.) These non registered schemes are the successor to the old non-approved schemes, however the old charge to income that they carried was removed as part of the pension simplification legislation (s247 FA04).
Benefits are paid to dependants free of income tax and IHT (in most circumstances) through a discretionary employer trust.
Relief should be claimed as part of the remuneration package of the employee in the same way pension contributions and registered scheme costs are claimed. I am not an accountant but my understanding is that no separate entry needs to be made.
For directors it should be noted that the cost of the cover should be reasonable in relation to the input of that director and with relation to similar businesses (as per pension contributions). For full time working directors I don't see this being a problem as the premiums will generally be fairly low in relation the companies overall expenditure. See BIM 45525 (life cover for employees) which directs you to BIM 4600 onwards for policies for the benefit of the employee in particular BIM 46035 for directors. This refers to pensions but the same rules apply to RLPs.
The other reply regarding key person policies is also correct for non-shareholding employees, (but not significant shareholding directors) however the benefits would be taxed as a trading receipt when paid into the company. RLP benefits are paid outside the company through the trust and are therefore not a trading receipt. Also the shareholding does not have the same relevance.
Not so much being too good to be true - just extending the same benefits large company employees can enjoy through registered group schemes to smaller companies.
Non registered schemes are much easier to set up than registered ones, and also have the advantage that the benefits don't accrue to the pension fund for lifetime allowance purposes. Very important for high earners.
These policies are not new - they have been around since 2006 but up until we launched this plan to the general market they were only used by some of the group risk providers to opt high earners out of their schemes, so were not generally known about.
Relevant Life Policy FAQ
Yes these policies are a tax efficicient way of providing personal life insurance benefits for company directors. As an IFA over the last year or so I have spoken and advised many self employed company directors of the cost savings of the relevant life policy.
At present there are now 4 insurance companies offering the policy at first there was only Bright Grey but now Zurich, Scotish Life and Prudential all offer Relevant Life Policy Quotes.
At present many clients that could save are missing out on the savings possible. I have done various press realeases to help this. However the article here along with other information on the internet all help.