What are Relevant Life Policies?
A Relevant Life Policy (RLP) is a tax-efficient life insurance plan set up by a business to provide death-in-service benefits for an individual employee, typically a director or key staff member. (Basically, it can be a really good way for company owners to arrange their life insurance!)
How is it Arranged?
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The business arranges a policy on the individual it wishes to receive the offer the benefit to. The business still owns and pays for the policy.
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In the event of a claim on either death or terminal illness the policy provides a lump sum paid into trust to the employee’s family or nominated beneficiaries. It is also possible to arrange a payout in the event of suffering a career ending illness.
Taxation of Premiums and Proceeds
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Premiums: As the policy is owned and paid for by the business for the purpose of providing a death-in-service benefit the premiums are usually eligible for corporation tax relief. The premiums are not treated as a benefit-in-kind on the employee.
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Proceeds: Since a requirement of these plans is to write the policy into trust, the proceeds are not liable for Inheritance Tax (IHT). However, in some instances periodic charges may be applied to benefits within trust. These can be avoided by carefully structuring plans appropriately where necessary. Read our recent blog article here.
Considererations
To qualify as a Relevant Life Policy the following criteria must be met:
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Cover can only be provided up until the life assured's 75th birthday.
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The policy cannot accrue a surrender value.
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There must be a distinguishable employer/employee relationship (this means sole traders and partnerships cannot take out cover on themselves or the partners. Directors DO meet this criteria though.
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The policy can only be paid out, into trust, to an individual or charity.
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Only certain death benefits or disabling illnesses/injuries meet the criteria.
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The main purpose of the policy should not be tax avoidance.