Mr L.B. Asks:
I have a Life Assurance Policy which ends when I am 60 and currently costs £87pm. I have my own Limited Company which I could get to pay the premiums for me but is this possible and is there any tax implication?
Peter Sharratt Answers:
The payments can be paid by your Company but there would be NO Tax benefit in doing so as the premium payable by the company would be treated as if it was a salary payment to you and subject to Tax and National Insurance. The sums are a little bit involved but whether you pay the premium or the company pays the end result is the same; there is no tax benefit/saving. This is not to say that there is not a solution.
You could for instance opt for a Relevant Life Policy which is a relatively new type of Life Assurance. The policy is set up by your Company and it pays the premium. This should be classed as a legitimate business expense and as a result it will reduce the amount of Corporation Tax the Company pays. The premiums payable by the Company are NOT classed as a Benefit In Kind and so you do not personally pay any Tax or National Insurance. The policy will be set up under a Discretionary Trust which should ensure that in the event of a claim the proceeds are paid Tax Free. There can be situations where a Tax Charge could arise but these are rare and too detailed to go into here. The Discretionary Trust also allows you to nominate who you would like to benefit should you die and it can also ensure prompt payment in the event of a claim as there is no need to wait for probate.
Setting up a new policy is relatively straight forward but you should not cancel the existing policy until such time as the new one has been accepted as it will be subject to underwriting. There is a Risk that the policy is not accepted or that the premiums are increased (due to health) and if you have already cancelled the existing policy you could be left without cover. A Relevant Life Policy is a way for a Company Director to put in place Life Assurance Tax Efficiently; The Company is paying the premium and reducing the amount of Corporation Tax it pays and you are no longer paying for the cover out of your Taxed Income. There are not many providers that offer this type of policy so please get further assistance from an Independent Financial Adviser.
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Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made.
