Cutting costs of life assurance for company directors
If you get your company to pay for your life assurance rather than paying the premiums personally, you can potentially save Income Tax, National Insurance and Corporation Tax too.
Most of us need life cover, and for those working for larger companies, some of this can often be provided by way of a Group Death in Service policy. Smaller companies, however, often have too few employees to arrange group life cover, so directors will tend to arrange their own life assurance, paid for out of taxed income. They needn’t.
“Relevant Life” policies allow companies to provide life assurance cover for individual employees (not the self-employed) typically of up to 25x remuneration. As with Group Death in Service, the premium is paid by the company and is generally allowable as a business expense against corporation tax. It is not classed as a P11D benefit-in-kind taxed on the employee, and any benefit paid out is tax-free. Benefits can also be paid into Trust, so that they don’t form a part of the estate for IHT. A further advantage is that unlike the sum assured under a Death in Service plan, the lump sum from a Relevant Life policy doesn’t count towards the Pensions Lifetime Allowance (£1.25 million dropping next year to £1m).
For example: a company director who is a higher rate taxpayer paying £1,000 per annum for personal life cover would require a gross income of £1,724 to receive £1,000 net of 40% tax and 2% NIC. Once you add Employer’s NIC, the total cost to the business is £1,962. As salary is a business expense, the effective cost of that £1,962 after corporation tax relief is £1,569. If the company pays the same premium to a relevant life policy instead, the net effective cost is just £800.
Please contact us directly or through WSM to speak to an adviser who can discuss Relevant Life policies. Punter Southall Financial Management is an independent, whole of market financial adviser regulated by the FCA.
Duncan Macpherson is a Chartered Financial Planner at Punter Southall Financial Management.