Contractor’s Guide to Tax Efficient Life Insurance

We understand that Life Insurance isn’t the most exciting of purchases but taking a moment to make a simple change to your Life Insurance could save you hundreds of pounds in the future. Let us introduce you to Relevant Life Insurance.

What is Relevant Life Insurance?

Relevant Life Insurance is a policy to help protect your loved ones financially if you were to pass away. It will pay out a tax-free lump sum to your family member (or chosen beneficiaries) to compensate for the loss of your income and can be put toward paying off the mortgage, any other debts, maintaining your family’s lifestyle and day-to-day bills.

Wondering how this is different from standard Life Insurance?

Relevant Life Insurance is designed to benefit Contractors and limited company owners. The policy is taken out by a business or organisation on behalf on an employee (like yourself) rather than an individual. The premiums are therefore paid as a business expense rather than out of your pocket.

How does it save you tax?

Relevant Life insurance saves you tax in a number of ways. As it is claimed as a business expense, you receive a tax-relief on the payments as it doesn’t come out of your post-taxed income. As the premium is paid for through your company profits, it will reduce your corporation tax bill.

Not only is Relevant tax efficient when paid for, but it is also tax efficient when paid out. If written into a trust, the payout made will not form part of your estate so your family can receive the funds faster, as they will skip past the long probate process. It can also be used to reduce your inheritance tax bill.

In addition to saving you tax, Relevant Life is not seen as a ‘benefit-in-kind’ and does not need to be included as a part of your P11D form, nor will you be subject to any national insurance contributions.

How much money could you save?

If you’re a company owner and pay £100 a month out of your post-taxed income for Life Insurance, it could be costing your company more than it should.

To pay for a £100 per month policy, it is costing your business £158.93. How?

This is the figure after corporation tax, income tax (assuming you’re a higher tax payer) and national insurance contributions.

However, by switching to a Relevant Life policy and paying for the policy through your business,  as an expense, you can claim the corporation tax relief, making the net cost only £81 per month.

Keep in mind that this is an example of how much you could save. It’s always best to speak to an expert adviser to get to the right figures as your situation may be different. Our partners, Broadbench, are Contractor protection specialists.

Get in touch with them to organise your tax efficient Life Insurance here.

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Disclaimer:

The information in this article has not been written by Caunce O’Hara & Co Ltd or any of Caunce O’Hara’s employees. None of the opinions or views contained within this article are Caunce O’Hara’s nor do we accept responsibility for any financial advice given within the article.

Caunce O’Hara & Co Ltd do not provide Life Insurance policies nor advice regarding Life Insurance or accounting and bookkeeping.