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For nearly two decades, Davenport Thomas’s highly experienced team has worked closely with numerous accountancy practices to support their clients with a wide range of financial planning needs.

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Protect Key People and Maximise Director Benefits

21st Feb 2024
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For nearly two decades, Davenport Thomas’s highly experienced team has worked closely with numerous accountancy practices to support their clients with a wide range of financial planning needs.

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Have you found this content useful? Use the button above to save it to your profile.

Many businesses are highly dependent on certain members of staff, without whom they would struggle or fail to operate. Key person insurance is designed to protect businesses against the financial loss that would be incurred if this key individual were to die and to allow the business to continue operating, as well as providing a tax-free lump sum payment to the key person’s beneficiaries.

Protect key people and maximise director benefits | Davenport Thomas | Business defending his team with a gesture of protection. Life insurance. Customer care, care for employees. Security and safety in a business team. Human resources. A responsibility.

 

Tax efficient options

Such policies will normally be Relevant Life Plans but could also be set up as standalone term insurance plans. As the premiums are paid by the business, they are typically tax-deductible offering potential savings on Income Tax, Corporation Tax, and National Insurance contributions.

By placing the policy within a trust, the proceeds can be swiftly distributed to beneficiaries without being subject to Inheritance Tax or undergoing the probate process. This ensures that loved ones receive the financial support they need promptly, alleviating any potential financial burdens during an already challenging time.

 

An example

We recently gave advice to a limited company which is growing exponentially. Each of the three directors had life cover of £300,000 which we identified was clearly insufficient as the business was making over £900,000 a year, with an estimated valuation of £5.4m.

The shareholder agreement stated that each director’s family could be bought out for their share of the net asset value (£300,000), whereas in reality each director’s value was closer to £1.8m.

We advised each of them to put in place a Relevant Life Plan with cover of £1m until they reached age 65, which was the agreed age at which each ceased to be a director. The policies were written in trust for the benefit of their families.

Total premiums were under £400 per month and qualify as a business expense.

 

In summary

Protecting key people is a compelling proposition for directors of limited companies, offering tax advantages, expedited payout through trusts, and tailor-made cover to suit each person’s individual needs. By safeguarding both their financial future and that of their loved ones, directors can navigate uncertainties with confidence, knowing they have a robust plan in place.

At Davenport Thomas, we understand how businesses need to protect their key individuals and families. For a discussion about how we can help, you can book directly into Richard’s diary via Calendly, email or call.

 

[email protected]

Contact number – 0208 6182077

Calendly – Richard Mumford

 

 

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Financial protection policies typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse. The Financial Conduct Authority (FCA) does not regulate Will writing, tax and trust advice and certain forms of estate planning.