Following the recent increases in corporation tax and dividend tax rates, it is worthwhile drawing attention to a particularly tax efficient benefit that can be taken advantage of by shareholder directors, including personal service companies with only one director/employee.
Up to the age of 75, it is possible to take out life insurance, paid for by the company as a corporation tax deductible cost, which will pay out a tax free lump sum in the event of your death to your chosen beneficiary (e.g. a spouse or other family members).
This is not treated as a P11d benefit meaning that there is no personal tax cost associated with it either.
This type of life insurance policy is called a ‘Relevant Life Policy’.
To put figures around this, the cost saving of paying for life insurance through the company by using a Relevant Life Policy, compared to taking out life insurance personally, is over 50% for a higher or additional rate taxpayer.
The life policy can be set up in such a way that, in the unfortunate event there is a claim, the proceeds are paid into a trust. This will ensure that the proceeds don’t form part of the estate of the deceased for inheritance tax purposes.
If this is of interest to you, please get in touch.