Relevant Life Policies
Relevant
Life Policies
Presented by
NAME TO BE SUPPLIED
TITLE TO BE SUPPLIED
Scottish Provident
Relevant Life Policies
An introduction to relevant life policies (RLPs)
• Non registered
• Single life
• Death in service policy
• Provides a lump sum benefit on death
Relevant Life Policies
Where do RLPs sit within the legislation?
Group life cover
Registered
The normal employee
group life scheme*
Non registered
Relevant life
policies
S393B(4) (b) ITEPA 03
-single life
-group life*
*Scottish Provident do not offer group life
X
Employer
Financed
Retirement
Benefit
Schemes
Unattractive tax regime
40% charge on claim
Relevant Life Policies
What do relevant life policies do?
• Provide employer sponsored life cover
• Available for an employee on a stand-alone basis
• Tax efficient
Relevant Life Policies
How are they tax efficient?
• Premiums paid by the employer
•
No P11D charge on the employee (S247 FA 04)
•
No NIC charge on employee or employer
•
Possible tax relief on premiums (subject to wholly and exclusive rules)
•
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
Relevant Life Policies
How much could be saved?
Premium
Employee owned plan
Relevant life policy
£1,000
£1,000
Company gross cost
Income Tax @ 40%
£690
Employee’s National Insurance @ 2%
£34
Employer gross cost
Employer’s National Insurance contribution @ 13.8%
Total gross cost
£238
£1,962
£1,000
£392
£200*
£1,570
£800*
Company net cost
Corporation Tax relief @ 20%
Total net cost
* For the purpose of the example, it has been assumed that Corporation Tax relief at 20% has been granted under the ‘wholly and
exclusively’ rules. Also assumes 40% tax payer. Rates as at 2011/12.
Relevant Life Policies
What are the restrictions?
The policies must:
•
Only provide for a lump sum death benefit payable before age 75
•
Only be payable to an individual or charity (required to be paid into
discretionary trust)
The policies must not:
•
Provide any other benefit
•
Be capable of having a surrender value
•
Be used mainly for the purpose of tax avoidance
Relevant Life Policies
How does the trust work?
Relevant life policies must be written in trust
•
Paid to dependants at the discretion of the Trustees
•
Nomination form can be used
•
No income tax for the employee
•
Normally no IHT
•
Possible 10 year and exit charge if claim paid into trust close to 10th anniversary and
benefit not distributed immediately
Relevant Life Policies
How much cover?
Scottish Provident would normally cover up to 15X annual
salary
•
This can include salary, regular dividends paid in lieu of salary and
benefits in kind
Relevant Life Policies
Do we have a replacement policy option?
• We do not 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
Relevant Life Policies
Can the policies be transferred
to a new employer?
• Yes – the new employer just pays the premiums
• We would suggest a change of Trustees
Relevant Life Policies
Who is it aimed at?
• High earning employees or directors
•
Who have substantial pension funds
•
Who do not want their death in service benefits forming part of their lifetime allowance
• Smaller businesses
•
Where there are too few employees to warrant a group life scheme
• Members of group life schemes
•
To top up their benefits beyond the scheme rules
Relevant Life Policies
Is it just aimed at limited companies?
No – but the person covered must be an employee of a:
•
Sole trader
•
Partnership
•
Limited liability partnership
•
Limited company
•
Charity
Relevant Life Policies
How do I submit the business?
• Self Assurance Term Business quote for level or
increasing Death Benefit
• Self Assurance Term Business application form (online
submission available)
• Separate plan/application for each life
•
Cannot incorporate other benefits
• Relevant life policy discretionary trust
Relevant Life Policies
Where are the sales opportunities?
• Do you have clients who are directors of their own
business?
• Do they have dependants?
• Do they have Life Cover?
• How are they paying for it?
• Could you sell them up to 49%* discount on that cover?
*Assumes 40% tax-paying employee and 20% Corporation Tax paying company and payment is acceptable to local tax inspector as trading expense
Tax Rates 2011/12
Relevant Life Policies
Support for you and your client
We have placed all of our relevant life policies
information in one toolkit to help you with every
step of the relevant life recommendation.
The toolkit includes our relevant life policies
guide, business generation letters to introduce
the tax benefits of relevant life policies, a client
facing sales aid, a question and answer
document, a relevant life policy calculator and
an application checklist.
All of our literature can be ordered
or downloaded from:
www.scottishprovident.co.uk/businessprotection
If you want to find out more, contact:
NAME TO BE ENTERED
0000 000 0000
Thank you.
Important information
The information in this presentation is based on Scottish Provident's present understanding of current law
and practice and does not constitute legal and/or taxation advice. You may wish to use all or some of the
slides from this presentation. But please keep in mind that if you use or adapt any of these slides for your
own presentation, you must make sure it’s compliant with the appropriate regulations and incorporate any
appropriate risk warnings. Scottish Provident does not accept liability for any adapted wording you may use
in this presentation.
SCPR 6030 JAN 11