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Bill & Ted are brothers in their early 40s. They are directors of their heating engineering company, W&E Heating Ltd. Over the past 20 years the business has been successful and they have been making sizeable pension contributions which have boosted their retirement funds to £600,000 each.
The plan is to continue with their retirement funding throughout the remainder of their business lives. They have ensured that the company is insured against the death of either one of them.
Bill & Ted are aware that, although they have protected their business, neither of them have any life assurance in place to provide for their respective spouses and children. Their plan was to commence individual life assurance plans, with sums assured of £750,000 until age 65, paid for personally with the benefits payable to their families. To cover the cost of the policies they planned to increase their salaries.
Action we took:
We recommended that their company took out a Relevant Life Policy on each of them as individuals for the sum assured and term they required, with the proceeds written in trust for their respective families.
Not only did they have the peace of mind knowing their families were protected but that the premiums were paid by the company which meant that their salaries did not require increasing. This also meant that they did not have to pay the additional 40% income tax and neither they nor the company had to pay the additional national insurance.
Had they paid the life assurance premiums from a ‘net’ salary the additional cost to the company, net of corporation tax, would have been £1,431 and £1,338 per annum respectively.
However as the Relevant Life Policy route was undertaken the additional cost to the company, net of corporation tax, was £768 and £710 per annum respectively.
As the premiums for the relevant life policies qualified under the ‘wholly and exclusively’ rules they were not treated as a benefit in kind and so generated no additional tax liability for Bill or Ted.
As the policies are not written under pension legislation the sums assured are not added to Bill or Ted’s pension fund values when checking against the Lifetime Allowance thus providing then with plenty of scope for their planned retirement funding.
Please not that if you are paying life assurance personally you could consider replacing the plan with a Relevant Life Plan paid for by the company.