Relevant life Policies Presented by Michael Cooke

2 Death In Service ‘Registered’ – - Group Schemes ‘Non-Registered’ - Stand Alone Relevant Life Policies Supporting the Family

Registered Group Schemes Part of the Royal London Group A group of specialist businesses where the bottom line is always financial sense. Company pays No P11D charge Normally corporation tax relief on premiums Generally tax-free benefits under trust

Part of the Royal London Group A group of specialist businesses where the bottom line is always financial sense. BUT Not available for a smaller companies Not available on a single life basis Can be inflexible Come under pensions scheme rules Lifetime allowance trap for high earners Registered Group Schemes

Premiums paid by the employer – No P11D charge on the employee (S247FA04) – No National Insurance Contribution charge on employee or employer – Subject to the local inspector of taxes accepting that the premiums are 'wholly and exclusively for the purpose of trade' as part of the remuneration of the employee, they may qualify for relief as a trading expense. – Do not form part of pension annual allowance Benefits paid – ( usually) tax-free under a discretionary trust – Do not form part of pension lifetime allowance NON Registered Schemes Relevant Life Plans

HMRC S247 FA04 - Abolition of income tax charge in respect of employer payments In Part 6 of ITEPA 2003, omit Chapter 1 (payments by employer for the provision of benefits for an employee under certain schemes to count as employment income of employee).

Relevant life policy Who is it aimed at? Part of the Royal London Group A group of specialist businesses where the bottom line is always financial sense. High earning employees - who don’t want their death-in-service benefits forming part of their lifetime allowance Smaller employers - where there are too few employees for a group scheme or just the directors are to be covered Topping up other scheme benefits - Where the holding group scheme is unwilling to offer enhanced benefits

Premium required by Joe Company Gross cost Employees 2% Income 40% Employers 13.8% Total gross cost to company £1, £1,962 Company Net cost CT relief at 20% Net cost of 392 £1,570 Taxation effect * Assumes 40% tax-paying employee and 20% corporation tax paying company. Tax rates 11/12

36% - saving Premium now paid by company Company Gross cost Employees 2% Income 40% Employers 13.8% Total gross cost to company £1, £1,962 Company Net cost CT relief at 20% Net cost of 392 £1,570 £1,000 NIL £1,000 Assumes 40% tax-paying employee and 20% corporation tax paying company *Corporation tax relief on relevant life policies assumes payment is acceptable to local tax inspector as trading expense Tax rates 11/12 Taxation effect

36% - 49% saving Premium now paid by company Company Gross cost Employees 2% Income 40% Employers 13.8% Total gross cost to company £1, £1,962 Company Net cost CT relief at 20% Net cost of 392 £1,570 £1,000 NIL £1, £800 Assumes 40% tax-paying employee and 20% corporation tax paying company *Corporation tax relief on relevant life policies assumes payment is acceptable to local tax inspector as trading expense Tax rates 11/12 Taxation effect

Relevant life policy What are the restrictions? Part of the Royal London Group A group of specialist businesses where the bottom line is always financial sense. Benefits must provide a lump sum on death before 75 No surrender value No other benefits can be provided Benefits payable via discretionary trust to dependants or charity Not to be set up for tax avoidance purposes

12 Setting Up RLP Company Insures employee dependants In the event of death ONLY discretionary trust Claim paid to trustees

Relevant life policy How does the trust work? Part of the Royal London Group A group of specialist businesses where the bottom line is always financial sense. Discretionary trust Paid to dependants at the discretion of the trustees Nomination form can be used No income tax Paid free of inheritance tax Possible periodic charges may apply Must be issued under trust from outset

Relevant life policy What cover? Part of the Royal London Group A group of specialist businesses where the bottom line is always financial sense. Normally the insurers will cover up to 20 x remuneration Could include dividends, benefits in kind and bonus They will also require proof of income for £2 million + Can be level, or increasing

Relevant life policy Do we have a replacement policy option? Part of the Royal London Group A group of specialist businesses where the bottom line is always financial sense. We don’t need one as it is a single life policy The trustees just appoint policy back to employee Better and cheaper than most group scheme options

Relevant life policy Transfer to a new employer Part of the Royal London Group A group of specialist businesses where the bottom line is always financial sense. Can the policy be transferred to a new employer? Yes – the new employer just pays the premiums We would suggest a change of trustees

Relevant life policy Who is it aimed at? Part of the Royal London Group A group of specialist businesses where the bottom line is always financial sense. Not just for directors of limited liability companies – but the life assured must be an employee of a: Sole trader Partnership Limited liability partnership Limited company Charity