Have you heard of tax-efficient life insurance?

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Most successful people have taken out life insurance – a way to be certain that loved ones are taken care of if the unexpected happens. Many will not realise that there can be substantial tax advantages from paying for this protection from their small business rather than their personal finances.

Relevant life insurance allows employers to offer a death-in-service benefit to their employees. It is set up by the employer and pays out a tax-free lump sum on the death (or terminal illness) of the person insured. The proceeds go to the employee’s dependants.

In fact, there are six key ways it can pay to take out relevant life insurance for directors and employees:

  1. With personal life insurance, your premiums are paid from your taxed income. If your business pays, the premiums are taken from the business account before it is taxed. This provides a benefit to employees and is a tax-deductible corporation tax expense.
  2. Usually, benefits offered by employers attract benefit in kind tax but relevant life insurance is exempt.
  3. It is also exempt from National Insurance payments.
  4. The life insurance policy is written into a Trust from day one so it sits outside of your estate for inheritance tax purposes.
  5. It is also possible for any surviving partner to borrow money from the Trust, under legal agreement. The money is loaned to the partner for life with interest charged annually for the duration. Upon his/her death, the monies owed plus interest is repaid to the Trust, effectively reducing their estate too.
  6. Many doctors fall foul of the lifetime allowance, particularly because upon death, their death in service payments are added to their pension. Relevant life insurance is not part of the lifetime allowance consideration.

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To find out more about the tax-savings you could make via your business, please contact the team on 020 7252 5765.

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