Tax-Efficient Relevant Life Cover: A Smart Benefit for Business Owners and Directors
In today’s competitive business environment, attracting and retaining top talent is more important than ever. One of the most tax-efficient ways for employers—especially limited company directors, small business owners, and high earners—to provide valuable employee benefits is through Relevant Life Cover.
What Is Relevant Life Cover?
Relevant Life Cover is a type of life insurance policy taken out by an employer on the life of an employee. It pays out a lump sum benefit to the employee’s family or nominated beneficiaries if they die (or are diagnosed with a terminal illness) during the term of the policy.
Unlike traditional group life schemes, Relevant Life policies are designed for small businesses that may not have enough employees to justify a full group scheme. It’s especially popular among company directors and high-earning employees due to its tax efficiency.
Why Is It Tax-Efficient?
Relevant Life Cover offers several key tax advantages:
1. Corporation Tax Relief
Premiums are typically treated as an allowable business expense, meaning the company can claim corporation tax relief—provided the policy is "wholly and exclusively" for the purposes of trade.
2. No Benefit in Kind
Unlike most life insurance policies paid by employers, Relevant Life policies do not count as a benefit in kind. That means:
No additional income tax for the employee
No National Insurance contributions for the employer or employee
3. Inheritance Tax Savings
When set up under a relevant life trust, the benefit is paid outside of the employee’s estate. This means:
No inheritance tax on the payout
A faster and simpler claims process, as the funds don’t go through probate
Who Can Benefit from Relevant Life Cover?
Relevant Life Cover is ideal for:
Company directors who want personal life insurance paid by their business
Small businesses looking to provide a tax-efficient employee benefit
High earners approaching or exceeding pension Lifetime Allowance limits (as the policy doesn’t count towards pension allowances)
Not Eligible: Sole Traders, Equity Partners, and LLP Members
It’s important to note that Relevant Life Cover is only available to employees of a company. Sole traders and business partners in a traditional partnership or LLP can’t use this type of policy.
How Much Cover Can You Get?
Policies can be tailored to individual needs, with cover based on a multiple of the employee’s salary (usually up to 15 times total remuneration, including bonuses and dividends). Premiums are fixed or reviewable, and cover can last until the employee reaches age 75.
The Importance of Using a Trust
Setting up a Relevant Life Policy in a discretionary trust is essential.
This ensures:
The payout is outside of the estate (no inheritance tax)
The correct beneficiaries receive the money quickly and tax-free
Most insurers provide a standard relevant life trust deed at no extra cost.
Conclusion: A Win-Win for Employers and Employees
Relevant Life Cover is a highly tax-efficient way for businesses to offer life insurance to directors and key employees.
With corporation tax relief, no benefit-in-kind implications, and potential inheritance tax savings, it offers substantial advantages over personal policies.
If you're a business owner or director looking to protect your loved ones and reduce your company’s tax burden, Relevant Life Cover could be the ideal solution.
Ready to Protect What Matters?
We specialise in tailored, tax-efficient insurance solutions for business owners and professionals. Contact us today to discuss how a Relevant Life Policy can work for you or your team.
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