A little known tax breakmeans company directors who pay their life insurance through their companies rather than from their taxable personal income, can make savings of around 50%, totalling thousands of pounds over the life term.
Rather than paying an individual life insurance policy monthly from net income, company directors can set up what is known as a Relevant Life Policy, which is paid for directly by the company on behalf of the Director. The premiums should be an allowable business expense, which means the company can claim corporation tax relief and no Employer's National Insurance is payable. Secondly, the policy does not count as a benefit in kind, therefore the employee is not required to pay income tax or National Insurance on the contributions.
Example:
The real cost of a £200 per month life insurance policy to a higher rate taxpayer, after accounting for tax and national insurance, is £392 of gross pay
By paying a relevant life policy premium through the business, the £200 per month premium is subject to no income tax or NI contributions. The remaining £192 produces an additional £98pm of net income available to the higher rate taxpayer whilst retaining the same amount of life cover. This represents a saving of 49%.
Stuart Law, Chief Executive of Assetz Finance, said:
"It is surprising how few company directors and accountants are aware of this opportunity to save thousands of pounds over the course of a life policy. Directors working day to day in the business are employees as well as employers, and can therefore qualify for a Relevant Life Policy themselves as well as offer it as a benefit to their staff if they so wish."
Relevant Life Policies are restricted to providing life cover only and do not include critical illness cover or income protection benefits. The policy must not extend beyond the client's 75thbirthday.
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