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Relevant life Policies

Relevant life Policies

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Relevant life Policies

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  1. Relevant life Policies Presented by Michael Cooke

  2. Death In Service ‘Registered’ – - Group Schemes ‘Non-Registered’ - Stand Alone Relevant Life Policies Supporting the Family 2

  3. Registered Group Schemes • Company pays • No P11D charge • Normally corporation tax relief on premiums • Generally tax-free benefits under trust Part of the Royal London Group A group of specialist businesses where the bottom line is always financial sense.

  4. Registered Group Schemes • BUT • Not available for a smaller companies • Not available on a single life basis • Can be inflexible • Come under pensions scheme rules • Lifetime allowance trap for high earners Part of the Royal London Group A group of specialist businesses where the bottom line is always financial sense.

  5. Premiums paid by the employer No P11D charge on the employee (S247FA04) No National Insurance Contribution charge on employee or employer Subject to the local inspector of taxes accepting that the premiums are 'wholly and exclusively for the purpose of trade' as part of the remuneration of the employee, they may qualify for relief as a trading expense.   Do not form part of pension annual allowance Benefits paid (usually) tax-free under a discretionary trust Do not form part of pension lifetime allowance NON Registered Schemes Relevant Life Plans

  6. Relevant life policy Who is it aimed at? • High earning employees • - who don’t want their death-in-service benefits • forming part of their lifetime allowance • Smaller employers • - where there are too few employees for a group • scheme or just the directors are to be covered • Topping up other scheme benefits • - Where the holding group scheme is unwilling to • offer enhanced benefits Part of the Royal London Group A group of specialist businesses where the bottom line is always financial sense.

  7. Taxation effect * Assumes 40% tax-paying employee and 20% corporation tax paying company. Tax rates 11/12

  8. Taxation effect 36% - saving £1,000 NIL £1,000 Assumes 40% tax-paying employee and 20% corporation tax paying company *Corporation tax relief on relevant life policies assumes payment is acceptable to local tax inspector as trading expense Tax rates 11/12

  9. Taxation effect 36% - 49% saving £1,000 NIL £1,000 200 Assumes 40% tax-paying employee and 20% corporation tax paying company *Corporation tax relief on relevant life policies assumes payment is acceptable to local tax inspector as trading expense Tax rates 11/12 £800

  10. Relevant life policy What are the restrictions? • Benefits must provide a lump sum on death before 75 • No surrender value • No other benefits can be provided • Benefits payable via discretionary trust to dependants or charity • Not to be set up for tax avoidance purposes Part of the Royal London Group A group of specialist businesses where the bottom line is always financial sense.

  11. Setting Up RLP Company Insures employee In the event of death ONLY trust Claim paid to trustees discretionary dependants 12

  12. Relevant life policy How does the trust work? • Discretionary trust • Paid to dependants at the discretion of the trustees • Nomination form can be used • No income tax • Paid free of inheritance tax • Possible periodic charges may apply • Must be issued under trust from outset Part of the Royal London Group A group of specialist businesses where the bottom line is always financial sense.

  13. Relevant life policy What cover? • Normally the insurers will cover up to • 20 x remunerationCould include dividends, benefits in kind and bonusThey will also require proof of income for £2 million + • Can be level, or increasing Part of the Royal London Group A group of specialist businesses where the bottom line is always financial sense.

  14. Relevant life policy Do we have a replacement policy option? • We don’t need one as it is a single life policy • The trustees just appoint policy back to employee • Better and cheaper than most group scheme options Part of the Royal London Group A group of specialist businesses where the bottom line is always financial sense.

  15. Relevant life policy Transfer to a new employer • Can the policy be transferred to a new employer? • Yes – the new employer just pays the premiums • We would suggest a change of trustees Part of the Royal London Group A group of specialist businesses where the bottom line is always financial sense.

  16. Relevant life policy Who is it aimed at? • Not just for directors of limited liability companies – but the life assured must be an employee of a: • Sole trader • Partnership • Limited liability partnership • Limited company • Charity Part of the Royal London Group A group of specialist businesses where the bottom line is always financial sense.