Looking for a simple, tax-efficient way to provide life cover for company directors and employees? Relevant Life Insurance (RLI) could be the optimal solution.
Relevant Life Insurance (RLI) policies are highly tax-efficient and particularly beneficial for high-earning directors and small businesses. Often facilitated through a financial adviser, these plans provide death-in-service benefits through a tax-free lump sum payment. However, it’s the tax relief and Inheritance Tax (IHT) advantages that make them notably attractive.
Are you a business owner?
If the answer is yes, RLI offers a cost-effective way to provide employees with death-in-service benefits. This is particularly valuable for smaller businesses finding protection schemes too expensive or impractical. In short, RLI is ideal for:
- Employers wanting to offer death-in-service benefits but with too few employees to set up a group scheme.
- Directors wishing to arrange their own individual death-in-service benefits without extending cover to all employees.
- High-earning individuals, such as directors, where death-in-service benefits do not count towards their lifetime allowance.
Tax benefits
Premiums are typically treated as a deductible business expense for Corporation Tax purposes, providing they meet HMRC’s “wholly and exclusively for the purposes of trade” rule. This means the premiums avoid Corporation Tax, reducing the company’s overall tax bill.
In addition, RLI plans are not treated as a benefit in kind, so there is no National Insurance contribution due from either the employer or the employee on the premiums. Furthermore, the employee pays no income tax on these premiums. These combined tax advantages make a RLI plan a highly cost-effective solution for both the business and its employees (see chart below).
Inheritance Tax (IHT) benefits
Since RLI policies are written into a discretionary trust, any payout made to beneficiaries are not considered part of the deceased’s estate, meaning it often avoids IHT. This helps beneficiaries receive payouts quickly, mitigating lengthy delays associated with probate.
Simple underwriting process
For companies insuring multiple employees, the underwriting process is often more straightforward than applying for several individual life policies, saving you from large chunks of time and significant administrative efforts.
Flexible and portable cover
You can set up the cover to be flexible, allowing you to choose the amount of cover and the term – often up to retirement age – and tailor it to suit both business and individual needs. The cover can also be made portable, so that if someone leaves the company, it can usually be transferred to a new employer or converted into a personal plan without the need for further medical underwriting.
Practical considerations
Before setting up a RLI plan, businesses should carefully consider the level of cover required, taking into account salary, potential liabilities, and any existing insurance arrangements. It’s important to ensure that the trust structure is correctly established, as this is key to achieving the desired IHT and tax benefits. Premiums should be reviewed annually to reflect salary increases, role changes, or evolving business needs. Communication with employees is also essential, particularly if the plan forms part of a broader benefits package, so that expectations are clear and the policy is understood.
Tip: An adviser offers expert guidance on selecting the most suitable plan and ensures ongoing compliance with tax laws.
[i] Are you a business owner keen to provide employees with death-in-ser-vice benefits, whist making significant tax bill savings? Speak to an expert by calling 03300 564 446.
