Protection Flashcards
(3 cards)
Relevant Life Plan
Company - set up / owner
Tax free - death or terminal
Paid to Family or deps
Tax deductible as expense
Discretionary trust
No LTA
The policy would be set up by the company.
• It would pay out a tax-free lump sum on Simon’s death, or on the diagnosis of a terminal
illness if this option is included in the policy.
• The proceeds are paid to the family/ financial dependants of the life assured. In Simon’s case, this would be to Grace, and to Harry and Emma if they are still financially dependent.
• The cost of the policy is a tax-deductible expense for the company.
• The policy must be written into a discretionary trust.
• Unlike a registered group life scheme, a Relevant Life Cover plan is not written under pension rules and so the benefits will not be tested against Simon’s lifetime allowance.
Tax treatment of relevant life plan
Premiums paid by company
Tax deductible expense against corp tax liability
Not BIK no NI on premiums
No income tax on lump sum
Not part of estate for IHT as Must be written under trust
No LTA as not written on pension rules
Typically, the premiums paid by the company for a Relevant Life plan are deemed to be tax deductible expenses. In the case of Wickrow Publishing Ltd, this would mean the premiums would be deductible against the company’s Corporation Tax liability.
Additionally, as the setting up of a Relevant Life plan to provide life cover for Simon is not deemed to be a benefit in kind, the company will not have to pay any National Insurance Contributions on the cost of the premiums, nor will Simon have to pay any Income Tax on the value of the benefit.
As the policy is written in trust the payment will not form part of Simon’s estate on death and so will not be liable for any Inheritance Tax. Furthermore, as it is not written under pension rules it will not be included in the assessment against his lifetime allowance and so cannot trigger the payment of a lifetime allowance tax charge on his death.
Difference between Executive Income Protection and income protection
EIP takes into account
Salary,
Divs,
pension and
NI contribution
he biggest difference is that the cover provided by an executive income protection policy can take into account:
• Simon’s salary;
• The dividends he receives from Wickrow Publishing Ltd;
• The pension contributions paid by the employer; and
• The National Insurance contributions paid by the employer.
