Relevant life Policies

Presented by Michael Cooke

2

Death In Service• ‘Registered’ –

- Group Schemes

• ‘Non-Registered’

- Stand Alone Relevant Life Policies

Supporting the Family

Registered Group Schemes

Part of the Royal London GroupA group of specialist businesses where the bottom line is always financial sense.

• Company pays

• No P11D charge

• Normally corporation tax relief on premiums

• Generally tax-free benefits under trust

Part of the Royal London GroupA group of specialist businesses where the bottom line is always financial sense.

BUT• Not available for a smaller companies

• Not available on a single life basis

• Can be inflexible

• Come under pensions scheme rules

• Lifetime allowance trap for high earners

Registered Group Schemes

• Premiums paid by the employer

– No P11D charge on the employee (S247FA04)

– No National Insurance Contribution charge on employee or employer

– Subject to the local inspector of taxes accepting that the premiums are 'wholly

and exclusively for the purpose of trade' as part of the remuneration of the

employee, they may qualify for relief as a trading expense.

– 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

NON Registered SchemesRelevant Life Plans

Relevant life policyWho is it aimed at?

Part of the Royal London GroupA group of specialist businesses where the bottom line is always financial sense.

High earning employees - who don’t want their death-in-service benefits forming part of their lifetime allowance

Smaller employers - where there are too few employees for a group scheme or just the directors are to be covered

Topping up other scheme benefits- Where the holding group scheme is unwilling to offer enhanced benefits

Premium required by Joe

Company Gross cost

Employees NIC @ 2%Income Tax @ 40%Employers NIC @ 13.8%Total gross cost to company

£1,000

34690

238 £1,962

Company Net cost

CT relief at 20%Net cost of

392£1,570

Taxation effect

* Assumes 40% tax-paying employee and 20% corporation tax paying company. Tax rates 11/12

36% -saving

Premium now paid by company

Company Gross cost

Employees NIC @ 2%Income Tax @ 40%Employers NIC @ 13.8%Total gross cost to company

£1,000

34690

238

£1,962Company Net cost

CT relief at 20%Net cost of

392£1,570

£1,000

NIL

£1,000

Assumes 40% tax-paying employee and 20% corporation tax paying company*Corporation tax relief on relevant life policies assumes payment is acceptable to local tax inspector as trading expense Tax rates 11/12

Taxation effect

36% -49%

saving

Premium now paid by company

Company Gross cost

Employees NIC @ 2%Income Tax @ 40%Employers NIC @ 13.8%Total gross cost to company

£1,000

34690

238

£1,962Company Net cost

CT relief at 20%Net cost of

392£1,570

£1,000

NIL

£1,000

200£800

Assumes 40% tax-paying employee and 20% corporation tax paying company*Corporation tax relief on relevant life policies assumes payment is acceptable to local tax inspector as trading expense Tax rates 11/12

Taxation effect

Relevant life policyWhat are the restrictions?

Part of the Royal London GroupA group of specialist businesses where the bottom line is always financial sense.

• Benefits must provide a lump sum on death before 75

• No surrender value

• No other benefits can be provided

• Benefits payable via discretionary trust to dependants

or charity

• Not to be set up for tax avoidance purposes

12

Setting Up RLP

Company Insures employee

depe

ndan

ts

In the event of death

ONLY

disc

retio

nary trust

Claim paid to trustees

Relevant life policyHow does the trust work?

Part of the Royal London GroupA group of specialist businesses where the bottom line is always financial sense.

Discretionary trust

• Paid to dependants at the discretion of the trustees

• Nomination form can be used

• No income tax

• Paid free of inheritance tax

Possible periodic charges may apply

• Must be issued under trust from outset

Relevant life policyWhat cover?

Part of the Royal London GroupA group of specialist businesses where the bottom line is always financial sense.

• Normally the insurers will cover up to

20 x remunerationCould include dividends, benefits in kind and bonus

They will also require proof of income for £2 million +

Can be level, or increasing

Relevant life policyDo we have a replacement policy option?

Part of the Royal London GroupA group of specialist businesses where the bottom line is always financial sense.

• We don’t 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 policyTransfer to a new employer

Part of the Royal London GroupA group of specialist businesses where the bottom line is always financial sense.

Can the policy be transferred to a new employer?

• Yes – the new employer just pays the premiums

• We would suggest a change of trustees

Relevant life policyWho is it aimed at?

Part of the Royal London GroupA group of specialist businesses where the bottom line is always financial sense.

Not just for directors of limited liability companies – but the life assured must be an employee of a:

• Sole trader

• Partnership

• Limited liability partnership

• Limited company

• Charity