December 5, 2016
The Benefits of Relevant Life Plans
Relevant Life Plans (RLP’s) are a way of providing death-in-service benefits on an individual basis no matter how small your business is.
RLP’s could suit higher paid directors, business owners and other employees who want higher levels of life cover, with the tax and other benefits that normally only apply to large group schemes.
Who would benefit from RLP’s?
- Small businesses that don’t have enough eligible employees to warrant a group life scheme
- High-earning employees or directors who have substantial pension funds and don’t want their benefits to form part of their lifetime allowance
- Employees of any type of business
- Members of group life schemes who want to top up their benefits
- RLP’s aren’t suitable for self-employed or equity partners
What are the benefits?
- Although the company makes the payments, they’re not normally treated as a benefit in kind, so they’re not included in your income tax assessments. For a higher rate taxpayer, this could be a significant saving
- Unlike a registered group scheme, the benefit won’t form part of your annual or lifetime pension allowance
- These payments may be treated as an allowable expense for the company in calculating its tax liability, as long as the local inspector of taxes is satisfied they qualify under the ‘wholly and exclusively’ rules
What’s the maximum amount of cover under a Relevant Life Plan?
The legislation does have some limits to qualify for the tax concessions, to ensure these are met:
- The cover must be paid in a single lump sum before the age of 75
- Only death benefits can be provided
- Benefits must be paid through a discretionary trust
- Beneficiaries are normally restricted to family members and dependants
What changes can the company can make to the plan?
The plan is flexible, so includes options for your employer to increase the cover following certain life events:
- Getting married or divorced or entering into or dissolving a civil partnership
- Moving house
- Having a baby or adopting a child
- Getting a pay rise
What are the advantages of using a discretionary trust?
Having benefits paid through a trust makes sure they can’t be taxed as part of the company’s trading income, nor do they form part of the company’s assets.
The trust is discretionary, allowing trustees to be flexible in who they pay benefits to. It’s possible for the person covered to guide the trustees in their decision making and a nomination form is included in the trust to enable the person covered to express their wishes. Although this isn’t legally binding on the trustees, it helps to guide them.
Using a trust also makes sure that in most circumstances benefits are paid free of both income tax and inheritance tax.
Are there any disadvantages?
There are restrictions in the legislation on who benefits can be paid to. The use of the trust is the most practical way to make sure you meet these requirements. The trust includes dependants of the person covered within the class of potential beneficiaries.
If you’d like more information, please get in touch Richard Dilley