Tax Efficient Life Cover For Business Owners
Shareholding directors can now have personal life and/or Critical Illness cover paid for by their business and incur no benefit in kind (P11d) tax charge, thus making it more tax efficient.
It is quite possible that you may already have some life or critical illness cover attaching to your mortgage, or indeed you may not have any cover in place at all. With this recent development that allows your business to cover the costs of the cover, now would be an opportune time to review your personal situation.
This type of arrangement can only be arranged on single life basis, i.e. taken out on the life of an employee by an employer to provide death in service benefits. It is designed to provide individual members who may require life or critical illness cover where the number of employees is too low for a company group death in service scheme or you only want to cover specific individuals.
These plans are restricted to providing life and critical illness cover only and cannot contain any other benefits. The policy must cease by the insured’s 75th birthday. The monthly premiums are paid in a more tax efficient way by the employer (the Ltd company) compared to employees paying for their life cover benefits personally.
The good news is, directors working day to day in a business are likely to qualify as employees so they can benefit from this tax efficient and more cost effective way of providing life cover.
Why consider such a policy:
The company can make the payments, usually as an allowable deduction without them being treated as a benefit in kind, which means:
- The policy premiums are potentially treated as a business expense and are likely to be an allowable deduction against Corporation Tax for the Ltd company
- The policy premiums and the sum assured don’t form part of an individual’s annual or lifetime allowance for pension funding purposes, whereas some Death In Service schemes can effect an individual’s Lifetime Allowance
- There is no liability for the employer or employee to pay National Insurance on the policy premiums
- There is no liability for the employee to suffer Income Tax on the policy premiums
- Life cover benefits are paid tax free to the nominated beneficiaries
If you would like to know more or review your current arrangements please contact your adviser.
Published by: Faisal Hamed
faisal.hamed@michaelambrose.co.uk