Tax efficient life insurance
Many employers offer their employees life insurance cover as part of their benefit package. Although a popular incentive, employers too small to have a group life insurance policy are left with taking out separate policies for individual employees. This can give rise to a liability for income tax and National Insurance Contributions (NIC).
Rob Ennis, our Employment Tax Director, suggests a tax efficient alternative designed to meet the needs of small businesses.
Ordinary life insurance policies
Ordinary life insurance policies are popular with employees as they offer financial security for family and loved ones. This is particularly true for lower paid employees without large pension pots.
However, where an individual policy is taken out for each employee, income tax charges, and possibly NIC, can arise for the staff member. Employer’s NIC can also apply. But there is an alternative.
Relevant Life Policy – the tax efficient alternative
A Relevant Life Policy (RLP) is a life insurance policy for an individual employee. Unlike ordinary individual policies, it can usually be set up in a way that’s tax efficient for both employer and employee. It runs for a set policy term and delivers valuable death in service protection during the course of the employment.
If opting for a RLP over an ordinary policy, it is worth bearing in mind that although pay-outs are not generally subject to tax, there is a possibility of the proceeds being included as part of the employee’s estate, and subject to inheritance tax.
To discuss your tax position and find out if a Relevant Life Policy would benefit you contact Rob Ennis.