Business protection decision tree

This tool will give you possible business protection solutions based on a client's business structure and the purpose of the cover.

Click on an answer below

Sole trader
Partnership
Limited liability
partnership (LLP)
Limited company
Partnership & shareholder protection
Key person
Loan protection
Death in Service
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Sole trader – Partnership & shareholder protection

An own-life plan can help protect the family of a sole trader who dies or gets a critical illness.
The plan can be written under a split trust to avoid probate delay and make sure any claim is paid out in an inheritance-tax-efficient way.

For more information, download our guide.


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Sole trader – key person

If the person to be covered is a key employee, think about:
  • A life-of-another plan, owned by the sole trader on the life of their employee.
  • If the plan is for a maximum term of 5 years and it's not for loan protection, the premiums might be deductible as a trading expense. If so, the payout from a claim will be taxed as a trading receipt
If the person to be covered is your sole trader client, think about:
  • An own-life protection plan, to help protect the sole trader’s family if they die or get a critical illness.
  • Writing the plan under a split trust to avoid probate delay and make sure any claim is paid out in an inheritance-tax-efficient way.

For more information, download our guide.


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Sole trader – loan protection

If the person to be covered is a key employee, think about:
  • A life-of-another plan, owned by the sole trader on the life of their employee.
  • Whether their lender may need the plan to be assigned to them.
  • As the plan is for loan protection, the premiums shouldn't be deductible as a trading expense. Any payout from a claim shouldn't be taxed as a trading receipt.
If the person to be covered is your sole trader client, think about:
  • An own-life protection plan, to help protect the sole trader’s family if they die or get a critical illness.
  • The plan could be written under a split trust to avoid a probate delay and make sure any claim is paid out in an inheritance-tax-efficient way.
  • If the lender needs the plan to be assigned to them. If so, the plan shouldn't be written in trust.

For more information, download our guide.


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Sole trader – death in service

If the person to be covered is an employee, think about:
  • A life-of-another relevant life plan, owned by the employer on the life of their employee.
  • If the plan only includes life cover and is written under a relevant life plan trust from the start and doesn’t go past age 75, it should qualify as a tax-efficient relevant life plan.
If the person to be covered is your sole trader client:
  • Self-employed people aren’t eligible for relevant life plans to cover their own lives.
  • They could take out an own-life plan to help protect their family if they die
  • The plan could be written under a split trust to avoid a probate delay and make sure any claim is paid out in an inheritance-tax-efficient way.

For more information, download our guide.


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Partnership – Partnership & shareholder protection

Own-life plans under business trusts
An own-life plan for each partner, with each plan written under its own business trust from the start.

Things to think about:
  • Is the partnership agreement compatible with the protection arrangement? It might need to be changed, or if there's no agreement, one might need to be put in place.
  • A cross-option agreement can be prepared to set out how the interests will be valued and give the partners options to buy and sell interests in the business.
  • Equalising premiums to remove inequalities due to age or differences in ownership share reinforces the commerciality of the arrangement. This can be important for heritance tax.
Life-of-another plans

Each partner can take out a plan on each co-owner. Any payout from a claim will be paid directly to the partner who owns the plan.

Things to think about:
  • Cover shouldn’t be arranged in this way if the business has more than 3 partners or if the ownership of the business might change in the future.
  • Is the partnership agreement compatible with the protection arrangement? It might need to be changed, or if there's no agreement, one may need to be put in place.
  • If a cross-option agreement can be prepared to set out how the interests will be valued and give the partners options to buy and sell interests in the business.

Automatic accrual
  • The partnership agreement might provide for automatic accrual, where the partnership interest of a partner automatically transfers to the surviving partners on their death.
  • The partners can each take out own-life plans written under a split trust with their families as the beneficiaries, as they won't get payment from the surviving partners for their interest in the partnership
It's important to remember that premiums for Partnership & shareholder protection will usually be paid from the partners’ post-tax income. They won't be deductible as a trading expense of the business.

For more information, download our guide.


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Partnership – key person

If the person to be covered is a key employee, think about:
  • A life-of-another plan, owned by one of the partners on the life of their employee and written under a business trust with the co-partners as beneficiaries.
  • If the term of the plan is for a maximum of 5 years and it's not for loan protection, the premiums might be deductible as a trading expense. If so, any payout from a claim will be taxed as a trading receipt.
If the person to be covered is a partner in the business, think about:
  • An own-life protection plan written under a business trust from the start with the co-partners as beneficiaries. Key person cover can be combined with an Partnership & shareholder protection plan created in this way.
  • Life-of-another plans, owned by the other partners. Key person cover can be combined with an Partnership & shareholder protection plan created in this way. This shouldn't be used for businesses with more than 3 partners or if the ownership of the business might change in the future.
The premiums won't be deductible as a trading expense of the business.

For more information, download our guide.


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Partnership – loan protection

If the person to be covered is a key employee, think about:
  • A life-of-another plan, owned by one of the partners on the life of their employee and written under a business trust with the co-partners as beneficiaries.
  • Whether the lender might need the plan to be assigned to them. If so, the plan would be assigned to the lender instead of being written in trust.
As the plan is for loan protection, the premiums shouldn't be deductible as a trading expense. And because the plan is under trust, any payout from a claim wouldn't be taxed as a trading receipt.

If the person to be covered is a partner in the business, think about:
  • An own-life protection plan written under a business trust from the start with the co-partners as beneficiaries.
  • Life-of-another plans, owned by the other partners. This shouldn't be used for businesses with more than 3 partners or if the ownership of the business might change in the future.
  • If the lender might need the plan to be assigned to them. If so, the plan shouldn't be written in trust.
The premiums won't be deductible as a trading expense of the business.

For more information, download our guide.


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Partnership – death in service

If the person to be covered is an employee, think about:
  • A life-of-another relevant life plan, owned by the employer on the life of the employee.
  • If the plan only includes life cover and is written under a relevant life plan trust from the start and doesn’t go beyond age 75, it should qualify as a tax efficient relevant life plan.
If the person to be covered is a partner, it’s important to remember:
  • Equity partners aren't eligible for relevant life plans on their own lives.
  • They could take out an own-life plan to help protect their family if they die.
  • The plan could be written under a split trust to avoid a probate delay and make sure any claim is paid out in an inheritance-tax-efficient way.

For more information, download our guide.


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Limited liability partnership – Partnership & shareholder protection

Own-life plans under business trusts
An own-life plan for each member, with each plan written under its own business trust from the start.

Things to think about:
  • Is the LLP agreement compatible with the protection arrangement? It might need to be changed, or if there's no agreement, one may need to be put in place.
  • A cross-option agreement can be prepared to set out how the interests will be valued and give the members options to buy and sell interests in the business.
  • Equalising premiums to remove inequalities due to age or differences in ownership share reinforces the commerciality of the arrangement. This can be important for inheritance tax.
Life-of-another plans

Each member can take out a plan on each co-member. Any payout from a claim will be paid directly to the member who owns the plan.

Things to think about:
  • Cover shouldn't be arranged in this way if the business has more than 3 members or if the ownership of the business might change in the future.
  • Is the LLP agreement compatible with the protection arrangement? It might need to be changed, or if there's no agreement, one may need to be put in place.
  • If a cross-option agreement can be prepared to set out how the interests will be valued and give the members options to buy and sell interests in the business.
Tax
Premiums for Partnership & shareholder protection will usually be paid from the members’ post-tax income. They won't be deductible as a trading expense of the business.

For more information, download our guide.


Back
Limited liability partnership – key person

If the person to be covered is a key employee, think about:
  • A life-of-another plan, owned by the LLP on the life of its employee.
  • If the term of the plan is for a maximum of 5 years and it's not for loan protection, the premiums might be deductible as a trading expense. If so, any payout from a claim will be taxed as a trading receipt.
If the person to be covered is a member, think about:
  • An own-life protection plan written under a business trust from the start with the co-members as beneficiaries. Key person cover can be combined with an Partnership & shareholder protection plan created in this way.
  • Life-of-another plans, owned by the other members. Key person cover can be combined with Partnership & shareholder protection plans created in this way. This shouldn't be used for businesses with more than 3 partners or if the ownership of the business might change in the future.
  • Life-of-another plans, owned by the LLP on the life of each member.
The premiums won't be deductible as a trading expense of the business.

For more information, download our guide.


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Limited liability partnership – loan protection

If the person to be covered is a key employee, think about:
  • A life-of-another plan, owned by the LLP on the life of its employee.
  • If the lender might need the plan to be assigned to them.
As the plan is for loan protection, the premiums shouldn't be deductible as a trading expense. And because the plan is under trust, any payout from a claim wouldn't be taxed as a trading receipt.

If the person covered is a member, think about:
  • An own-life protection plan written under a business trust from the start with the co-members as beneficiaries.
  • Life-of-another plans, owned by the other members. This shouldn't be used for businesses with more than 3 partners or if the ownership of the business might change in the future.
  • Life-of-another plans, owned by the LLP on the life of each member.
  • Whether the lender might need the plan to be assigned to them. If so, the plan shouldn't be written in trust.
The premiums won't be deductible as a trading expense of the business.

For more information, download our guide.


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Limited liability partnership - death in service

If the person to be covered is an employee, think about:
  • A life-of-another relevant life plan, owned by the LLP on the life of the employee.
  • If the plan only includes life cover and is written under a relevant life plan trust from the start and doesn’t go beyond age 75, it should qualify as a tax-efficient relevant life plan.
If the person to be covered is a member, it’s important to remember:
  • Members aren't eligible for relevant life plans on their own lives.
  • They can take out an own-life plan to help protect their family if they die.
  • The plan could be written under a split trust to avoid a probate delay and make sure any claim is paid out in an inheritance-tax-efficient way.

For more information, download our guide.


Back
Limited company – Partnership & shareholder protection

Own-life plans under business trusts
An own-life plan for each shareholder, with each plan being written under its own business trust from the start.

Things to think about:
  • Are the articles of association/any shareholder agreements compatible with the protection arrangement? They may need to be changed, or if there’s no agreement, one may need to be put in place.
  • A cross-option agreement can be prepared to set out how the shares will be valued and give the shareholders options to buy and sell the shares in the business.
  • Equalising premiums to remove inequalities due to age or differences in ownership share reinforces the commerciality of the arrangement. This can be important for inheritance tax.
Tax:
  • Premiums can be paid from the shareholders’ post-tax income.
  • If the company pays the premiums and doesn't re-charge the cost to the shareholder, the premiums will be assessable for income tax and National Insurance contributions (unless the payment represents re-payment of a director’s loan account).
Company share purchase
The company takes out a plan on the life of each shareholder to the value of their shareholding. If a shareholder dies or gets a critical illness, the company buys the shareholder’s shares, which are then cancelled and revert to un-issued share capital.
For cover to be taken out in this way:
  • The articles of association must let the company purchase its own shares.
  • The requirements for company share purchase under the Companies Act 2006 must be met.
  • The shares should have been owned by the shareholders for at least 5 years before the sale or 3 years for a sale by their personal representatives. If less, there may be a substantial income tax liability for the shareholders or their estates when they die.
Things to think about:
  • Do the articles of association permit company share purchase? If not, they must either be changed or cover needs to be taken out in a different way.
  • A cross-option agreement can be prepared to set out how the shares will be valued and to give the company options to buy, and the shareholders/their estates options to sell the shares in the business.
Tax:
The company will pay the premiums, which won't be deductible as a trading expense. The premiums won't be subject to income tax or National Insurance.
Life-of-another plans

Each shareholder can take out a plan on each co-shareholder. The payout from a claim will be paid directly to the shareholder who owns the plan.

Things to think about:
  • Cover shouldn't be arranged in this way if the business has more than 3 shareholders or if the ownership of the business might change in the future.
  • Are there articles of association/any shareholder agreements compatible with the protection arrangement? They may need to be changed, or if there’s no agreement, one may need to be put in place.
  • A cross-option agreement can be prepared to set out how the shares will be valued and give the shareholders options to buy and sell the shares in the business.
Tax:
  • Premiums can be paid from the shareholders’ post-tax income.
  • If the company pays the premiums and doesn't re-charge the cost to the shareholder, the premiums will be assessable for income tax and National Insurance contributions (unless the payment represents re-payment of a director’s loan account).

For more information, download our guide.


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Limited company – key person

If the person to be covered is a key employee, think about:
  • A life-of-another plan, owned by the company on the life of its employee.
  • If the term of the plan is for a maximum of 5 years and it's not for loan protection, the premiums might be deductible as a trading expense. If so, any payout from a claim will be taxed as a trading receipt.
If the person to be covered is a shareholding director in the business, think about:
  • An own-life protection plan written under a business trust from the start with the co-owners as beneficiaries. Key person cover can be combined with an Partnership & shareholder protection plan created in this way. Premiums can be paid from the shareholders' post-tax income. If the company pays the premiums and doesn't re-charge the cost to the shareholder, the premiums will be assessable for income tax and National Insurance contributions (unless the payment represents re-payment of a director's loan account).
  • Life-of-another plans, owned by the company. Key person cover can be combined with company share purchase Partnership & shareholder protection plans created in this way. The premiums won't be deductible as a trading expense of the business.

For more information, download our guide.


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Limited company – loan protection

If the person to be covered is a key employee, think about:
  • A life-of-another plan, owned by the company on the life of its employee.
  • Whether the lender might need the plan to be assigned to them.
As the plan is for loan protection, the premiums shouldn't be deductible as a trading expense. If they are, the payout from a claim shouldn't be taxed as a trading receipt.
If the person to be covered is a shareholding director in the business, think about:
  • An own-life protection plan written under a business trust from the start with the co-owners as beneficiaries. Key person cover can be combined with an Partnership & shareholder protection plan created in this way. Premiums can be paid from the shareholders' post-tax income. If the company pays the premiums and doesn't re-charge the cost to the shareholder, the premiums will be assessable for income tax and National Insurance contributions (unless the payment represents re-payment of a director's loan account).
  • Life-of-another plans, owned by the company. Key person cover can be combined with company share purchase Partnership & shareholder protection plans created in this way. The premiums won't be deductible as a trading expense of the business.
  • If the plan is for loan protection, the lender might need the plan to be assigned to them. If so, the plan shouldn't be written in trust.

For more information, download our guide.


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Limited company - death in service

Things to think about:
  • A life-of-another relevant life plan, owned by the company on the life of an employee or director.
  • If the plan only includes life cover and is written under a relevant life plan trust from the start and doesn’t go past the age of 75, it should qualify as a tax-efficient relevant life plan.

For more information, download our guide.


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Last updated: 19 Nov 2015

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