Making your money work harder for you
Ian Poysden, Managing Director of IEP Financial Ltd, looks at putting your life cover on expenses
A Relevant Life Plan (RLP) is a great way for people to help solve the protection needs of employees or Directors of SME’s. They aim to provide a tax-efficient solution which means the typical premiums could be reduced by up to 49 per cent compared to a typical life policy for a Higher Rate Taxpayer!
What is an RLP?
A RLP is an individual Death in Service life policy. It is a term assurance plan designed to pay a lump sum if the person covered dies or is diagnosed with a terminal illness whilst employed during the term of the policy.
Through the RLP, employers can provide personal life cover benefits to their employees in a tax efficient manner. The RLP is designed to be written in a discretionary trust at outset, with the employee’s family and dependants as beneficiaries.
Who is it aimed at?
• Employers looking to provide ‘death in service’ benefits for their employees, but with too few employees to set up a group scheme. Unlike a group scheme there is no minimum number of employees needed to set up a RLP.
• Directors wishing to provide their own individual ‘death in service’ benefits without taking out a scheme on all employees.
• High earning individuals, such as directors, where ‘death in service’ does not form part of their ‘lifetime allowance’ (£1.5 million 2012/13 and reducing from 2014/15).
RLPs are not available where this is no employer/employee relationship. For example, sole traders, equity partners of a partnership or equity members of a Limited Liability Partnership.
Features and benefits
The plan can cover the employee during service up to their 75th birthday. The employer’s payments are usually treated as an allowable business by HMRC so companies qualify for Corporation Tax Relief. Also, the expense is not assessable for income tax or national insurance on the employee, and neither do they count towards the employee’s pension’s allowances. In addition, because the policy is written in a trust it is not in the employee’s estate for inheritance tax.
Any employer that wishes to treat RLP premiums for its directors, or employees, as an allowable business expense, should seek advice and clarification from its local inspector of taxes, either directly or via its accountant. In most cases it will qualify and can work out much cheaper than a typical life policy.
An RLP doesn’t have a surrender value at any time. Applicants should be aware that tax legislation may change in future, and the favourable tax treatment may not apply if the policy was taken out for tax avoidance purposes.
For more details about Relevant Life Plans please visit www.iepfinancial.co.uk
Ian Poysden is Managing Director of IEP Financial Ltd,
119 Church Road, Hove, BN3 2AF
Freephone: 0800 0436120
www.iepfinancial.co.uk
