A number of things conspire at this time to explain why Tax Tuesday, today, has decided to depart from its original plan and to outline the merits (including significant tax merits) of Relevant Life Policies.
For recruitment and employee retention, this could be one of your most important three minute reads in 2020.
For the following reasons, the subject of life insurance and, in particular, Relevant Life Policies, is as appropriate now as it has ever been:
- The number of life insurance protection policies within UK households has fallen between 2014 and 2019 (down from 29.3m to 23.7m) although £5.3bn of claims were paid out in 2018;
- 42% of households with a mortgage have no protection in place at all;
- Risks, like Coronavirus facing us right now, are unpredictable;
- The UK’s recruiters and employers are having to focus more strongly than ever on employee well-being and on the things which matter to employees;
- Death-In-Service benefits are popular with responsible employees, the sort of employees which employers value most;
- There are protection arrangements available, like Relevant Life Policies, which don’t just address items 1 to 5 above but are also highly tax efficient for all concerned.
For the above reasons, this practice is about to embark on a campaign to try and make sure that our clients are not allowing themselves to ignore suitable employee insurance arrangements for want of awareness of what’s available and for want of knowledge about the tax efficiencies which can be achieved.
A Relevant Life Policy (RLP) is a life insurance policy (capable, also, of covering critical illness and injury) which is distinct from the traditional death-in-service benefits policies attached to pension scheme membership. An RLP applies to employees, typically from ages 18 to 71, who are covered by their employer for a term of insurance between 12 months and 50 years. Monthly premiums are paid by the employer, entirely for the benefit of the employee (and their family), providing cover while in the service of that employer, as part of an overall package of employment benefits. When claims arise, pay-outs are mandatorily made to a discretionary trust from where the monies are then paid out to the family beneficiaries.
The RLP comes with key tax advantages, as follows:
- The premiums paid by the employer are tax deductible against business profits;
- The premiums paid by the employer are an entirely tax-free benefit for the employee;
- The premiums paid do not count towards the employee’s annual allowance for pension contribution purposes;
- The pay-out of benefits does not count towards the employee’s lifetime allowance for pension purposes;
- The pay-out of benefits is made to a trust and is not therefore included within the estate of the deceased (as applicable) for Inheritance Tax purposes.
As a result of all of this:
We invite our employer clients to consider obtaining suitable cover (through Relevant Life Policies) for your employee’s needs, to enhance your employment message for recruitment and retention purposes, to provide that cover at tax-relieved cost to the business and at NIL tax cost to your employees, and to protect against the uncertain and unpredictable risks like we see today.
We will be in touch again soon about protection as we are very conscious of both its importance today and the UK’s need for higher take-up. If you would like to discuss this now please contact your relationship principal or Tax Partner, Chris Barrington, by email.