Relevant life policies
Sales opportunity
Relevant life policies – qualifying rules
Income Tax (Earnings and Pensions) Act 2003
•
Life cover only
•
Single life assured
•
Benefits to an individual or a charity
•
Placed in relevant life policy trust from outset
•
No surrender value
•
Policy must end before age 75
•
Main purpose of the policy must not be tax avoidance
2
Employee benefits
• Pensions
•
•
•
– auto enrolment
Protection benefits
– group life/death in service
– group critical illness
– group income protection
Health care benefits
– group private medical insurance
– health cash plans
– employee assistance programme
Flexible benefits / salary sacrifice
– cycle to work
– employee discounts
– childcare vouchers
– technology
3
Why a relevant life policy instead of group life?
Advantages
•
•
•
•
•
•
•
No minimum scheme numbers
High max coverage amount
Tailored to individuals
Attraction, reward, retention
High net worth market
Annual/Lifetime Pension Allowance
More tax efficient for employer
• Individual application and trusts form
Disadvantages
• Individual underwriting – no salary
exemptions
4
Relevant life policies
A tax-efficient way of arranging life cover for employees
Employer
• Premiums paid by employer are a deductible business expense
• Premiums not assessable for National Insurance Contributions
Employee
• Premiums paid by employer are not a benefit in kind and so no income tax for
employee
• Benefits paid free of income tax
• Benefit is free of inheritance tax (not part of employee’s estate due to a trust)
• Does not form part of the employee’s annual or lifetime pension allowance
5
Relevant life policies in practice
Option A:
Ordinary life cover policy
Option B:
Relevant life policy
Employee pays premium from
salary
Employer pays the premium
Cost to employee
Monthly premium
Employee national insurance
Employee income tax
Gross earnings needed
£600
£105.88
£176.47
£882.35
Cost to employee
Premium
Employee national insurance
Employee income tax
£0
£0
£0
Cost to employer
Premium
Employer national insurance
contribution
£121.76
Cost to employer
Premium
Total national insurance (on gross
pay)
Total gross cost
£1004.11
Total cost to employer & employee
£600
Less corporation tax
£200.82
Less corporation tax
£120
Total cost
£803.29
Total cost
£0
£600
£0
£480.00
6
Online tools
7
What are the barriers?
Business owners
• Lack of awareness
• Lack of concern
• Cost
Advisers
• Lack of awareness
• Low priority
• Out of practice
• Complexity and time
• Low collaboration
Product
• Price
• Indexation
• Continuation
• Online portal restrictions
8
Qualification for a relevant life policy
Eligible for a relevant life policy
• An employee of a:
– Sole trader
– Partnership
– LLP
– Limited company
• A shareholding director of a limited company
Not eligible for a relevant life policy
• A sole trader
• An equity partner
• An LLP member
• A contractor
9
Opportunities
• How many SMEs do you see that are not eligible for group life?
• Which of your clients:
-
would like to reward their top employees?
would like to be able to offer a benefit to retain their top people?
would like to make their recruitment package more attractive?
• How would you market relevant life policies?
10
Thank you