In this article we look at some of the most common questions and answers on relevant life plans.
They’re single life, stand-alone death-in-service plans.
Relevant life plans are covered by the same legislation that deals with group schemes. But unlike the schemes provided by most big employers, they’re ‘non-registered’, so don’t fall under pensions legislation.
They provide life cover, through a discretionary trust, for the benefit of employees’ and directors’ dependants. They’re taken out and paid for by the employer.
Any employee or director of a limited company, partnership, charity or a sole trader can have one. However, you should check with the provider as some do not cover sole traders or equity partners where they are taxed under Schedule D.
Who are they for?
The benefits
The premiums
The table below shows the effect on the company of paying for ordinary life cover and having it treated as a benefit in kind. It then looks at a relevant life plan assuming it qualifies for tax relief.
| Premium | Ordinary life cover £1,000 a month | Relevant life plan £1,000 a month | |
|---|---|---|---|
| Employee’s National Insurance contribution at 2% | £34 | Nil | |
| Income tax @ 40% | £690 | Nil | |
| Employer’s National Insurance contribution at 13.8% | £207 | Nil | |
| Total gross cost | £1,931 | £1,000 | |
| Company net cost | Corporation tax relief at 19% | £367 | £190* |
| Net cost | £1,564 | £810* | |
*Assumes that corporation tax relief is 19% (small profits rate) and is allowed under the ‘wholly and exclusively’ rules. In both cases we’ve assumed a payment of £1,000 each year for the life cover on an employee who’s paying income tax at 40% and employee’s National Insurance at 2% on the top end income.
Relevant life plans are non-registered arrangements. They replaced the old unapproved schemes.
Because relevant life plans are non-registered schemes, they don’t come under pension legislation. This means there’s no connection between the sum assured on claim and the lump sum and death benefit allowance. Nor does the premium have any effect on the annual allowance. Registered schemes will come under pensions legislation for the annual allowance and lump sum and death benefit allowance.
To qualify under the ‘wholly and exclusively’ rules, the premiums should be treated as part of the employee’s remuneration. An individual’s remuneration package doesn’t represent just cash, but other benefits like death-in-service (group or single relevant life plans) and pensions.
The cost of the employee’s package should be reasonable in light of his or her contribution to the business and compared to similar businesses.
This is the same guidance you’ll find in the HMRC’s business income reference manuals:
This could mean a spouse who works part-time might not get relief on a big relevant life plan or pension contribution as it’s not appropriate to the work he or she does. However, the same benefits for a full-time working director should be perfectly acceptable to the taxman.
This is why we can’t say for sure that every case will be an allowable business expense. Each case is different and depends on the employee’s circumstances. However, it is our understanding that this would be allowable in the vast majority of circumstances.
The employer doesn’t need to make a separate entry on their self-assessment form – they should just include the premiums as part of their overall remuneration package.