A relevant life?

You don’t need to set up a group death in service scheme to leave a lump sum if a loved one dies. An alternative is to set up a relevant life plan. A relevant life plan is a ‘death-in service’ plan set up and paid for by an employer. These plans are covered by the same legislation that deals with group life insurance schemes. But unlike most schemes provided by large employers, they don’t fall under pension legislation because they’re non-registered

There are lots of good reasons to choose a relevant life plan. But it all boils down to tax-efficient life cover for directors and employees, and what business doesn’t want that?

Here are the reasons to choose a relevant life plan:

• The benefit will not form part of an employee’s lifetime pension allowance.
• The premiums will not form part of their annual allowance. So an employee can still make full use of their annual allowance to contribute to a registered pension scheme.
• The taxman doesn’t normally treat premiums paid by employers as a benefit in kind. This means employees don’t have to pay income tax on the premiums.
• Nor are the premiums usually assessable for employer or employee National Insurance contributions.
• If the taxman is satisfied the premiums qualify under the ‘wholly and exclusively’ rules, the employer can treat them as an allowable expense for corporation tax. The benefits are paid through a discretionary trust. They’re usually paid free of inheritance tax because the lump sum payment isn’t part of the employee’s estate. But the trust will be subject to normal inheritance tax rules for discretionary trusts.

Sometimes this may result in the following charges:

• 6% of everything over the nil rate band available to the trust. This could happen if, for example, the employee died shortly before the 10th anniversary and the benefits hadn’t been distributed to the beneficiaries.
• There will be no exit charges in the first 10 years of the trust’s existence. An exit charge may apply after the first 10 years when capital leaves the trust which is based upon the tax charge at the most recent ten year anniversary. The tax charged on exit is reduced proportionately so that a lower rate applies to assets leaving the trust soon after an anniversary. However, if there was no periodic charge, there will be no exit charge.

For more information contact Simon Gallagher Senior Manager – DTE Financial Planning –