Who are Relevant Life Plans designed to help?
A Relevant Life Plan may be set up by an employer to provide individual death in service benefit for an employee. It is particularly useful for smaller Companies that have too few members to set up a group scheme, and is designed to pay out a lump sum if the person covered dies or is diagnosed with a critical illness whilst employed by the Company during the term of the policy.
They can be of significant benefit to high earners who do not want their group death in service benefits included with their lifetime pension allowance. They may be used by employees who are looking to top up the benefits that they receive from their employer’s scheme.
Who is eligible to have a Relevant Life Plan?
Any employee of a business, including directors. The business may be a Limited Company, a partnership a charity or a sole trader. Sole traders or equity partners who are taxed under Schedule D cannot be covered, but a partner who is taxed under Schedule E and is ‘Salaried’ can.
Are there any tax benefits?
Premiums are paid by the Company but are not treated as a P11D benefit and so there is no charge on the employee.For a higher rate taxpayer in a small Company this could reduce costs by approximately a third. There are no national insurance implications either for the employee or employer.
Subject to agreement with the local tax inspector the premiums may be allowable as a trading expense. The benefits from the policy will be paid free of tax. They are normally free of inheritance tax and the benefits do not form part of the employee’s lifetime allowance for pensions.
Statistics provided by Bright Grey May 2013
What types of policy can be written?
Level, decreasing or increasing cover can be obtained, as can renewable term assurance. Cover may be increased where a policy has an RPI increasing option, or fixed increases can be included. None of the above would require any evidence of the health of the individual concerned.
Are there any restrictions on the policy?
- In order to qualify as a Relevant Life Plan then the following restrictions will apply:-
- It must be for Life Cover only. No disability or critical illness benefits are allowed.
- The term may not go past the employee’s 75 birthday.
- No surrender value is allowed.
- Benefits must be payable to an individual, a charity or to a trust. Plans are written through a discretionary trust to ensure that they are compliant.
- The policy must not be set up for tax avoidance purposes and the trust again is used to cover this issue.
How does the Trust Work?
As a broker we will assist an employer to set up the trust in conjunction with the insurer. With a discretionary trust the beneficiaries are usually family members, or may include a non family member such as a live in partner. The employer is automatically a trustee but at least one more trustee will be required. This is often an officer of the Company to reinforce the commercial aspects of the transaction.
In the case of a single person Company, the additional trustee will have to be an external person. It could be a spouse or the Company’s Accountant or Solicitor. It is recommended that a nomination form be completed to direct the trustees as to whom the benefits should be paid. Whilst this is not binding upon them it will normally guide them as to what is required and speed up the payment to the beneficiaries.
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