FOR ADVISERS ONLY

Providing life cover for employees

A relevant life plan is a death-in-service plan set up and paid for by an employer.

Key facts

Relevant life plans shouldn’t be used for the benefit of the business. It’s a benefit for the employee and their family. Any other use would raise questions with HMRC about whether it’s been set up for tax avoidance.
These plans are covered by the same legislation that deals with group schemes. But unlike most schemes provided by large employers, they don’t fall under pensions legislation because they’re ‘non-registered’.
Relevant life plans can sit alongside the group scheme as long as the employer is willing to fund it or allow the employee to fund it using salary sacrifice.

These plans are covered by the same legislation that deals with group schemes. But unlike most schemes provided by large employers, they don’t fall under pensions legislation because they’re ‘non-registered’.

Group life schemes

Some companies are big enough to run a registered group scheme to pay for life cover. This is tax-efficient because the payments they make aren’t treated as a P11D benefit, and they qualify for corporation tax relief. What’s more, the benefits are payable tax-free to dependants.

But directors of smaller companies have been missing out because it hasn’t been possible to have a one-member scheme, and group risk providers don’t usually cater for fewer than five members. So these directors pay for personal plans from their income after tax, or from the company account. If they pay from the company account, the payments are treated as income and taxed accordingly.

Relevant life plans

Relevant life plans are ideal for:

People with high earnings and big pension funds who don’t want their death-in-service benefits to form part of their lifetime allowance.
Small businesses that don’t have enough eligible employees for a group life scheme.
People who are currently in a group death-in-service scheme that doesn’t allow voluntary increases or has restrictive definitions of remuneration.
People in a group death-in-service scheme who don’t want their cover linked to salary at death but need a fixed sum.

Note: Relevant life plans can sit alongside the group scheme as long as the employer is willing to fund it or accept a salary sacrifice.

Note

The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice. Also it may not reflect the options available under a specific product which may not be as wide as legislations and regulations allow.

All references to taxation are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor.