Saving tax – with a life insurance policy
This is an insurance policy that a company takes out to provide a ‘death in service’ benefit to employees. It is a very tax efficient way of paying for any life insurance that you may need – especially if you are a higher rate tax payer.
For example, if you currently pay £50 a month for life insurance personally here’s what’s happening with tax behind the scenes:
| Company profit | £91 |
| Corporation tax | £17 |
| Available for dividends | £74 |
| Higher rate tax | £24 |
| What you’re left with | £50 |
If the company takes out a Relevant Life policy instead then the company would pay the £50 cost and get corporation tax relief too. This means the real cost to the company is just £40. You’re getting a tax saving of £51 every month on a policy only costing £50 to begin with. And with many life policies running for a long time you could save over £12,000 over 20 years.
Here’s a few final points:
- don’t cancel any policies you already have in place until you’ve been accepted for new life cover. You might find that there’s something in your medical history that makes new insurance impossible or very expensive.
- Relevant Life cover is a special type of policy that a company takes out for employees. You can’t just get your company to pay the premiums on your own life insurance. That would be a tax disaster.
- Unfortunately this only works for a limited company so sole trader can’t benefit. Sorry.
To discuss how a Relevant Life policy could work for your company then please get in touch.
