What is Relevant Life Insurance?
Relevant life insurance is a tax efficient way of a company providing life insurance for its employees, including directors of limited companies. Put simply, rather than the directors paying for their life insurance from their net salaries, with monies already taxed at a company and personal level, the limited company can pay for the premiums from its gross income.
What is the tax treatment of these policies?
Premiums are treated as an allowable business expense by HMRC. With Corporation tax relief available, and no additional income tax or NI to pay, the savings to be made by writing insurance in this manner are huge. A basic rate tax payer will save 40% of the cost, with the saving rising to almost 50% for a higher rate tax payer. The company will own and pay for the policy, and it is written into a trust to ensure that the benefits of the policy are paid out to those who you wish it to go to, without delay.
|How a relevant life policy can cut company costs|
|Premium||Ordinary life cover||Relevant Life Policy|
|Company gross cost||Employee’s National Insurance contributions at 2%||£34||Nil|
|Income tax @ 40%||£690||Nil|
|Employer’s National Insurance contributions at 13.8%||£238||Nil|
|Total gross cost||£1962||£1,000|
|Company net cost||Corporation tax relief at 20%||£392||£200*|
Source: Royal London *Assumes that corporation tax relief at 20% has been granted under the ‘wholly and exclusively’ rules. In both cases we’ve assumed a payment of £1,000 each year for the life cover on an employee who’s paying income tax at 40% and employee’s National Insurance at 2% on the top end of income. We’ve also assumed that the employer is paying corporation tax at the small profits rate of 20% and will pay employer’s National Insurance at the contracted-in rate of 13.8%
Your home or property may be repossessed if you do not keep up repayments on your mortgage.
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Relevant life insurance is a tax efficient way of a company providing life insurance for its employees, including directors of limited companies.
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Your initial mortgage consultation is obligation free. There will be a fee for mortgage advice of £695 of which £95 is payable when you apply, and we retain the commission from the mortgage lender. The precise amount will depend on your circumstances and mortgage loan amount, and will be discussed and agreed before you make a mortgage application.
Watts Mortgage & Wealth Management Ltd is directly authorised and regulated by the Financial Conduct Authority.
We are entered on the Financial Services Register No 624815 at www.fsa.gov.uk/register/home.do
More information is available on mortgages from the Money Advice Service. www.moneyadviceservice.org.uk
Where you have a complaint or dispute with us and we are unable to resolve it to your satisfaction then we are obliged to offer you access to the Financial Ombudsman Service. Please see the following link for further details www.financial-ombudsman.org.uk
Your property may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.
The FCA does not regulate some forms of mortgages. The FCA does not regulate taxation advice, trust advice and some forms of buy to let mortgages.