What is it?
A straightforward term assurance policy on the life of the director (or employee), that will pay out (to his or her dependants) if they die within the term. The maximum term is to age 75. Premiums should be treated as a business expense for Corporation Tax purposes to the company.
Aviva are now offering Relevant Life which will pay out on death or earlier diagnosis of a critical illness. This is based on their interpretation of the legislation (see below) although other insurers, who only offer life cover, haven’t yet taken the same view.
Why Do I Need It?
If you own your own company and you want to arrange life assurance to protect your family, this is more tax efficient than taking out the cover yourself and paying for it out of your own after taxed, after NI’d income.
How Much Can I Cover?
There is no legislative limit, but it should be reasonable, the life assurance companies normally limit the amount of cover you can have to 15 or 20 times your remuneration package, but if you are young you may be able to cover a higher income multiple. If you pay yourself a small salary and dividends, don’t worry, dividends can be taken into account.
Who takes out the policy?
The company takes out the policy on the director’s life. It is written in a trust and the director nominates beneficiaries. The company will be a trustee and it is sensible to appoint yourself as an individual and at least one other, it could be the beneficiary (spouse or partner).
What about tax?
The tax treatment is similar to a registered group scheme with the added advantage that benefits do not impact on the lifetime pension allowances.
Premiums should be a business expense for Corporation tax purposes and there won’t be any benefit in kind to report on your P11D. The lump sum on death would normally be paid tax free.
What about health?
Expect to fill in a medical questionnaire and expect the insurer to ask your GP for a report. In some cases insurers ask the life to be insured to attend a full medical. These are normally paid for by the insurer. If you have any existing medical conditions or have suffered any in the past, it’s your duty to disclose them. Don’t be put off considering cover, we will talk to the underwriters. Many people will have (or will have had) similar conditions; the underwriters have lots of experience in dealing with most of what can affect us.
For Your Accountant
This is all possible under legislation set out in Section 393 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA) and Section 482 ITTOIA 2005. More information at the end.
If you want your business to protect your family give Steve Clemence a call on 01822 855 555.