AXA Business Protection

1. AXA Business Protection Key Person and Loan Protection

2. Key Person Protection Topics to cover… • Background to Key Person • How it works • How to calculate cover • Taxation • Loan Protection

3. Key Person Protection Tax We offer some information about tax within this presentation. This information is based on our understanding of current UK Tax legislation. Tax rules are subject to change and their value depends on the customers circumstances.

4. Key Person Protection What is it for? • The protection of business profits • The protection of business loans • The protection of directors loans You can offer your clients Life Cover, Life or Early Critical Illness Cover or Critical Illness Cover

5. Key Person Protection Identifying the need… Business reports and accounts can assist in identifying the need for Key Person Protection. They may detail: • Names of directors and their shareholding • Directors’ remuneration • Turnover, gross and net profit • Liabilities • Amounts owed on directors loans • Profit trends over a number of years • Number of employees and payroll costs

6. Business (Applicant) Key Person Protection How does it work? Key Person (Life Assured)

7. Key Person Protection Steps to writing business… • Identify the life assured… Individuals whose skill, knowledge, experience or leadership contribute to the business’s financial success. There may be one or a number of people within a business whose death or serious illness could lead to a financial loss for the business.

8. Key Person Protection Steps to writing business… • Identify the life assured • Calculate the level of cover required… Multiple of salary calculation or Loss of profit calculation

9. Key Person Protection Steps to writing business… • Identify the life assured • Calculate the level of cover required… Multiple of salary calculation For Life Cover: Salary × maximum of 10 For Critical Illness Cover: Salary × between 5-7 Loss of profit calculation Either 5 x average net profit (3 years) Or 2 x average gross profit (3 years)

10. “ “ “ Policy must be intended to meet loss of profits resulting from loss of services of employee Sole relationship is that of employer and employee Policy is an annual or short term insurance ” ” ” Key Person Protection Tax treatment… The rules often referred to by the Local Inspector of Taxes are commonly known as the “Anderson Rules”. They state that premiums for Key Person Cover may be eligible for tax relief if the;

11. Premiums may receive corporation tax relief. Trading receipt may be taxable depending upon profitability Premiums will not receive corporation tax relief. Benefits will be treated as capital receipt and not taxed Key Person Protection Tax treatment… In summary, for Life and Critical Illness: If the Anderson rules have been met: If the Anderson rules have not been met: We can offer your clients all options – 20 year guaranteed and 20 year reviewable

12. Consult the local Inspector of Taxes Key Person Protection Tax treatment… It is not a question of whether the businessclaims the relief, it is whether they are entitled to it We have letters available on our website to send to HRMC

13. Amount of cover = sum of the above Loan Protection What is it for? Businesses, partnerships and sole traders need to borrow for: • New machinery • New premises • Credit or overdraft facility • General development/expansion

14. Loan Protection Tax treatment… Taxation of premiums Premiums are not an allowable deduction from profits. Taxation of benefits Generally not liable to Corporation Tax

15. Key Person and Loan Protection Summary… You should now know about; • The different types of cover available and how they work • How to calculate the level of cover • The tax treatment for cover premium/proceeds Remember!

16. Key Person Protection is to replace loss of profits caused by the death or serious illness of the key person Loan Protection is to repay outstanding debts or loans in those circumstances Key Person and Loan Protection Summary… You should now know about; • The different types of cover available and how they work • How to calculate the level of cover • The tax treatment for cover premium/proceeds

17. Key Person and Loan Protection… = risk mitigation! The protection of business profits The protection of business loans The protection of directors loans

18. Turnover Gross Profit Net Profit 2004 £3.4 million £1.3 million £328,000 2005 £3.4 million £1.2 million -£21,000 (loss) 2006 £3.3 million £1.3 million £490,000 Key Person and Loan Protection Case study… Your client is Male, 48 years old, amanaging director of Sapphire Group limited. The business supplies chemicals to the brewery and catering industries. Have been in business for 4 years. His remuneration for the last 3 years has been £55k, £59k and £59k. Business accounts reveal this picture: The company has applied for £1 million key person cover on the life of the sales director - the company estimates he contributes 33% to company profits’. He is also a major shareholder of the company. The purpose of the cover is to cover the potential loss in profits.

19. Key Person and Loan Protection Case study… Can you… • Calculate the key person sum assured? • Who will own the policy? And why? • Who will pay the premiums? • What criteria would the business have to satisfy to obtain tax relief on contributions? Explain? • Assuming the business cannot claim tax relief on the contributions, what will happen to the sum assured, should a claim arise. • What advice would you give regarding how the benefits might be treated by HMRC

20. Read our: • AXA Protection Account - Business Protection Guide • Quick Reference FAQ • Or visit • www.axa.co.uk/advisers/protection Key Person and Loan Protection Questions and further information… Any Questions? For further information