Directors and employees are eligible for a little known but highly tax efficient staff benefit provided by their employer. Life cover can be provided by what are known as 'relevant life plans'.

What is a relevant life plan?

A relevant life plan is an individual 'death in service' life policy. It is designed to pay a lump sum death benefit if the person covered dies or is diagnosed with a terminal illness during their employment. Relevant life plans are similar to most other types of life cover but attract various tax reliefs which greatly reduce the cost of providing this cover.

What are the tax reliefs?

  • Employer contributions to a relevant life plan are usually a corporation tax deductible expense.
  • The premiums paid by the employer in respect of the relevant life plan are not a benefit in kind for the employee and therefore the employee suffers no income tax liability in respect of the premiums paid. Neither the employer nor the employee suffer any NI contribution liability in respect of the premiums.
  • Because a relevant life plan is not a registered pension scheme any contributions made do not count towards the annual allowance for pension purposes. This means that full pension contributions can be made and the provision of relevant life plans will not interfere with any pension protections such as primary, enhanced or fixed protection an individual may have.
  • Upon death the benefits of a relevant life plan are usually paid under a discretionary trust to the dependents of the individual covered. This will help in reducing any impact of inheritance tax on the payment of the death benefit.

Who would benefit from a relevant life plan?

Any director or employee can be covered under a relevant life plan. Insurers will usually cover a multiple of between 10 and 25 times an individual's employment package. This would include salary, bonuses, benefits and dividends payable from the employer. Because of the tax relief available the cost of providing the life cover is usually substantially cheaper than conventional life policies.

Who cannot benefit from the scheme?

The benefits of relevant life plans are written on the lives of individual employees. It is not possible to offer joint life policies on spouses or partners.

As this is a policy that is provided to employees, the self-employed, partners or equity members of limited liability partnerships are not eligible.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.