A new variation of life cover is available for certain, eligible individuals. ‘Relevant Life' is a tax efficient arrangement which, if satisfying certain conditions, benefits from a tax favoured treatment of premiums and benefits. These premiums to a qualifying policy will be tax deductible for the Employer and will not be assessable on the employee as a P11D benefit.
Relevant Life can be used under many circumstances, examples including where the employee is ineligible for an employer death in service (DIS) arrangement (possibly due to age restrictions), for a group of employees where a registered group life scheme is unavailable (due to insufficient members), or for an individual where DIS benefits (which are written under pension scheme rules) could trigger a pensions Lifetime Allowance (LTA) tax charge due to accumulated funds.
On death any sum assured paid will be available to the intended beneficiaries without delay and will not be subject to income tax nor will it be included in the employee’s estate for inheritance tax (IHT) purposes.
To ensure that the desired tax treatment is secured, the policy must be effected subject to the special Relevant Life Policy Trust, providing that the benefits could be paid to any one or more of a wide class of beneficiaries, including the insured’s family and dependants. The employee has the opportunity to indicate to the Trustees whom they would like to benefit, in a similar way to an expression of wish nomination form. The Trust documentation must be completed at the same time as the application, i.e. before the policy is issued.
A Relevant Life Policy is only available to Employers (whether trading through a partnership, a limited liability partnership (“LLP”), a limited company or as a sole trader) who are applying for a new policy on the life of an employee. This includes a director and an officer of a company but does not include a partner in a partnership, a member of an LLP or a sole trader.
This type of cover and trust should not be used if it is intended to provide benefits beyond age 75 and beyond the period of employment. It can only be used for life cover, therefore excluding critical illness benefits and key person cover. Restrictions apply to sum assured maximums, these being up to 20 times annual salary for those aged 39 or under at outset, and cover at 15 times annual salary for clients aged 40 and over. In the right circumstances, relevant life cover offers a tax efficient benefit for both the employer and the employee. This is becoming increasingly popular providing a niche offering within the protection market.