Life Insurance – the most unexpected business expense?

Did you know Life Insurance can be a business expense? It’s something that always surprises our clients so we thought we’d write a blog about it.

There is just one caveat  – it’s limited to Limited Companies.

Yep, we know. It feels like there’s always a caveat when it comes to insurance. But we prefer to be upfront about these things, so it’s important to point out that ‘Relevant Life’ (as this insurance is known) is only relevant if you have a Limited Company.

If you do have a Limited Company, you can buy Life Insurance through your business. Since premiums are an allowable business expense, you’ll save money on corporation tax AND you won’t be paying for it out of your personal, taxed income.

Plus, Life Insurance isn’t considered to be a taxable benefit so doesn’t need to be declared on a P11D (a form to declare any ‘benefits in kind’).

What’s the difference between Personal Life Insurance and Relevant Life Insurance?

Relevant Life is a type of death-in-service benefit. Both types of insurance pay out a lump sump when you die but the main difference is that personal Life Insurance is paid for by you from your bank account, whereas Relevant Life Insurance is paid for by your business.

Let’s take a look at the potential cost savings:

Imagine your annual premium costs you £1000. For a personal Life Insurance policy, you would need to earn £1,724.13 gross to pay for it (taking into account income tax and employee NI contributions) at a cost to your business of £1,589.27 (after NI and corporation tax deductions).

The same premium on a Relevant Life plan would cost your business only £810 (after Corporation Tax savings).

A fictitious example

Relevant Life Insurance for a Company of One

If you’re the director (and sole employee) of your Limited Company and you don’t have Life Insurance, paying for it through your business might be the push you needed to get it set up. And if you already have a personal life insurance policy, replacing it with a Relevant Life policy paid for by your business will save you money as it’s a more tax-efficient type of life insurance.

“Before I spoke to Macbeth, I had no idea life insurance could be a business expense. As a company of one, it’s a no brainer to arrange it through my business – I just wish I’d known about it earlier.” Anita Ellis, Lexicomm

If your partner or spouse is also employed by your business, you can also buy a life policy for them – a Relevant Life policy is an allowable business expense for any or all employees.

3 benefits of Relevant Life Insurance:

• Tax efficient (allowable business expense)
• Protects payouts from inheritance tax (policies are owned by the business so are outside your estate for inheritance tax purposes)
• No P11D (Life Insurance isn’t a taxable benefit)

Relevant Life also doesn’t affect the Lump Sum & Death Benefit Allowance (LSDBA) because it doesn’t count towards this allowance (currently £1,073,100).

Relevant Life for your Employees

Want to go one step further? Relevant Life is also a great benefit for anyone in your team you’d like to look after. It’s tax-efficient for you as an employer, your employee and your employee’s beneficiaries.

The eligibility bit:

• You must be a permanent resident of, and physically living in, the UK.
• You must be an employee of a UK resident Limited Company or Limited Liability Partnership. This includes salaried partners/directors and salaried single directors of a limited company but NOT equity partners, sole traders or the self-employed.
• You must be between the ages of 18 and 73

If you are director of a Limited Company (especially if you are also the sole employee like Anita), Life Insurance paid for by your business is probably a no-brainer.

And if, like many business owners, you took out Life Insurance a lifetime ago (possibly when you took out your first mortgage), using a broker like Macbeth with access to the whole insurance market makes it even more of a no-brainer as you’ll get the best possible price available.

Want a quote for tax-efficient Life Insurance?

 Email Simon or call 0118 916  5480