Our partners, Broadbench, share their tips for taxing efficiently
The value of life insurance is indubitable. It enables us to financially protect our loved ones after we’ve passed away; providing them with the finances needed to pay off any outstanding debt and support their ongoing living costs.
What many people don’t know is that, if you’re the Director of a limited company (or the employee of one), you can benefit from paying for your life insurance tax efficiently. This is called Relevant Life Insurance.
Relevant Life Insurance in more detail
Relevant Life Insurance is a life insurance policy designed to afford limited company Directors the same tax efficient benefits that big businesses enjoy.
The policy is taken out by a company on behalf of an employee (like yourself), rather than an individual policy. The premiums are therefore paid as a business expense rather than out of your own post-tax income.
What are the benefits of Relevant Life Insurance?
Relevant Life insurance has a number of benefits beyond ‘regular’ life insurance.
As it is paid for as a business expense and not out of your post-tax income, you receive a tax-relief on the premiums. This means that your corporation tax bill will be reduced.
Not only is Relevant tax efficient when paid for but it is also tax efficient when paid out. If written into a trust (which most policies are), the payout made will not form part of your estate, meaning that your loved ones will not have to go through a (often lengthy) probate process, receiving the funds sooner. It can also be used to reduce your inheritance tax bill.
In addition to saving you tax, Relevant Life Insurance is not seen as a ‘benefit-in-kind’ and does not need to be included as a part of your P11D form, nor will you be subject to any national insurance contributions.
How much money could you save?
As an example, if you own your own company and pay £100 a month from your own pocket for life insurance, it’s costing your company more than it should.
For starters, if you’re a 40% taxpayer, you’ll pay income tax on this premium and 2% employee national insurance contribution, plus 13.8% employers’ national insurance contribution.
After the 19% corporation tax relief too, the net cost to your company works out at £158.93 per month for you to pay for the policy personally.
If you pay £100 a month for a Relevant Life Insurance policy you won’t pay any national insurance contributions or income tax on the premiums but you still get the 19% corporation tax relief, making the net cost only £81 per month.
That’s a saving of £77.93 a month or £935.16 over the year.
To see that visually, you can watch this short video.
Protect what you love, tax efficiently
While we know that insurance is not the most riveting of topics, we also know how important peace of mind is when it comes to family. We all want to be confident that, in the worst case scenarios, our loved ones won’t have to worry about finances. Relevant Life Insurance enables you to enjoy this peace of mind in the most tax efficient way possible.
With this in mind, get in touch to have a conversation with an expert adviser at Broadbench, receive a quote, and learn how you can financially protect your loved ones in the best way possible.