Relevant Life policies - 'X' marks the spot?

The first thing to note is that premiums paid by the employer do not create a P11D charge on the employee. S247 Finance Act 2004 removed the charge old unapproved schemes were subject to, thus creating a highly tax-efficient vehicle.

This becomes even more so when corporation tax is deducted. Premiums should normally be allowable as a business expense being it is part of the remuneration structure of the employee and therefore ‘wholly and exclusively’ for the purpose of trade.

Having it in their employment/service contract would help to cement this.
The table (see opposite page) highlights the effect on costs for a typical company which pays corporation tax at the 20% rate and a 40% tax-paying director. This shows the difference between paying for a personal policy out of post-tax income and how an RLP can create a 49% saving in overall costs.

Benefits are normally paid tax free through the employer trust. The only possible tax charge is a periodic and/or exit charge from the trust. These charges apply to all non-pension discretionary trusts but only arise if there is any value to the trust on any 10th anniversary. As an RLP is a term assurance then normally there is no value.

However, it could arise in the unlikely event of an employee dying just before a 10th anniversary and the claim not being settled and paid in time. The charge is 6% of the excess of the sum assured over the then nil-rate band. This can easily be avoided by setting up multi-policies and trusts under the Rysaffe principal as each trust will have its own nil rate band.

In a word – life cover. It would be good if we could graft critical illness and disability benefits on but the legislation will not allow this – not even waiver of contributions. However, terminal illness benefit is acceptable.

The benefit has to be a term assurance paid in a lump sum and cannot run beyond the age of 75. Cover can be level, increasing or decreasing and premiums can be level or renewable.