Shareholder protection is for businesses with two or more shareholders. This policy protects you all if one of the shareholders dies.
A Relevant Life Insurance Policy is a term assurance plan available to employers to provide an individual ‘death in service’ benefit for an employee. It is designed to pay a lump sum if the employee dies whilst employed during the length of the policy. Relevant Life Policies have unique tax benefits because the insurance policy is paid for by the business on the behalf of the employee. While the policy is personal to you and your employees, the policy counts as an allowable business expense – it is also tax deductible and doesn’t count towards annual or lifetime pension allowances. Effectively the tax man helps you pay for yours and your employee’s life cover.
Although the policy is paid for by the business, the sum assured goes directly to the bereaved loved ones. This is because the policy is written in trust. A trust is a legal document which states exactly where the money should be in the event of your death; this prevents the sum from becoming part of your estate and is therefore not taxed.
How a relevant life policy can cut company costs
|Premium||Ordinary Life Cover||Relevant Life Policy|
|Company Gross Cost||Employee’s National Insurance Contribution at 2%||£34||NIL|
|Income tax at 40%||£690||NIL|
|Employer’s National Insurance Contribution at 13.8%||£238||NIL|
|Total Gross Cost||£1,962||£1,000|
|Company Net Cost||Corporation Tax Relief at 20%||£392||£200*|
Source: *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%
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