If your company is currently paying for life insurance for you or your family, or if you’re paying for life insurance personally (i.e. from your personal bank account), you could be wasting a tidy sum. Let me know and we will look at getting your policies switched over to ‘relevant life policies’ (RLP).
One problem with standard life insurance policies paid for by a company is that it gives rise to a taxable benefit in kind.
Example 1
B Ltd pays £800 in premiums in 2025/26 for a life insurance policy in respect of Bernie – a higher rate taxpayer and director/owner of the company. As a result, B Ltd will be liable to Class 1A NI of £120 (15% x £800), but will save corporation tax of £230 (assuming a 25% rate of corporation tax). Bernie will be liable to income tax of £320 (£800 x 40%). So, the company makes a net saving of £110 (£230 – £120) but Bernie pays £320. Bernie and his company combined have actually suffered a net tax/NI cost of £210 (£320 – £110).
But there is another way. One means of providing cover without the tax consequences would be for B Ltd to look at paying for a ‘relevant life policy’ (RLP) instead. If strict conditions are met, the RLP premiums do not give rise to a benefit in kind. This is because it they are specifically exempted.
Example 2
B Ltd takes out an RLP for Bernie costing £800 in 2025/26 – instead of a standard insurance policy. It receives corporation tax relief of £160 (assuming a 25% rate of corporation tax). There is no Class 1A NI charge, and Bernie does not need to pay any income tax as there is no benefit in kind. Bernie and his company are now £160 better off. Compare this with being £210 worse off and you’ll see that the improvement in Bernie’s position is a whopping £370 – that’s 46% of the value of the premiums!
An RLP is a ‘term assurance plan’- i.e. it runs for a set period of time agreed when the plan is first taken out. RLPs are available to companies to provide an individual death in service benefit for an employee or director. They are designed to pay a lump sum if the employee dies whilst employed during the length of the policy. They will also pay out if the employee, whilst employed, is diagnosed with a terminal illness.
Please give me a call if you’d like to put more tax-efficient life cover in place for you and your family.
