relevant life for financial advisers only. agenda 1.what is relevant life? 2.target market...
TRANSCRIPT
Relevant Life
For financial advisers only
Agenda
1. What is relevant life?
2. Target market
3. Legislation
4. Taxation of premiums and benefits
5. Tax saving example
6. Death in service (DIS) registered schemes
7. How to calculate the cover
8. The trust
9. Leaving employment
10. The process
11. Why Aegon?
What is relevant life?
A relevant life policy is an employer funded life assurance policy written on the life of an employee and which, provided it meets certain legislative requirements, benefits from favourable tax treatment.
Target market
Certain high earning employees
Small businesses
Members of group life schemes who want to top up benefits
Legislation
A relevant life policy is defined in S393B(4) of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA)
Tax treatment- Do premiums constitute a taxable benefit in kind?
- Are payments in the event of death or terminal illness subject to income tax?
- Are gains on the policy subject to income tax under Chapter 9 Part4 ITTOIA 2005 (chargeable event legislation) in the event of a death or terminal illness claim?
- Do the payments of the premiums qualify for tax relief?
Legislative requirements
The policy must only provide a lump sum death benefit payable before age 75
No surrender value
Benefits only payable to an individual or a charity
The benefits paid must be capital in nature
The main purpose of the policy must not be tax avoidance
Terminal illness benefit is only payable whilst the employee is in the employment of the employer
Taxation
No P11d benefit for employee
No NIC on employee or employer
Corporation tax relief/Income tax relief on employer premiums
No tax implications for employer or employee on payment of death or terminal illness benefit
A relevant life policy attracts beneficial tax treatment when compared to an ordinary life policy which the employer funds on behalf of an employee.
Tax saving example – 20%
Assuming monthly premium of £1,000, 20% taxpayer and corporation tax relief at 20%
Non-relevant Relevant
Life Life
Cost of premiums 1,000 1,000
PAYE 294 -
Employee NICs 177 -
Employer NICs 203 -
Tax relief for employer (335) (200)
Total cost £1,339 £800
Tax saving example – 40%
Assuming monthly premium of £1,000, 40% taxpayer and corporation tax relief at 20%
Non-relevant Relevant
Life Life
Cost of premiums 1,000 1,000
PAYE 690 -
Employee NICs 34 -
Employer NICs 238 -
Tax relief for employer (392) (200)
Total cost £1,570 £800
Tax saving example – 45%
Assuming monthly premium of £1,000, 45% taxpayer and corporation tax relief at 20%
Non-relevant Relevant
Life Life
Cost of premiums 1,000 1,000
PAYE 849 -
Employee NICs 38 -
Employer NICs 260 -
Tax relief for employer (429) (200)
Total cost £1,718 £800
Death in service (DIS) registered scheme
Advantages
Company pays
No P11D charge or NICs
Normally corporation tax relief
Generally tax free benefits under trust
Free underwriting
Current/Group costing
Disadvantages
Not available for small companies
Not available on a single life
Inflexible
Pension scheme rules
Lifetime allowance trap
Relevant life versus Death in service (DIS) registered scheme
Relevant Life Death in Service
registered scheme
Company pays
No P11D charge or NICs
Normally corporation tax relief
Generally tax free benefits under trust
Available for small companies
Available on a single life
No lifetime allowance trap
Not subject to pensions scheme rules
Flexible
How to calculate the cover
There are no limits to the level of cover set out in legislation.
Up to age 29 25 times salary
Ages 30 – 45 20 times salary
Ages 46 – 55 15 times salary
Age 56 and over 10 times salary
The trust
Our ‘Declaration of trust for a relevant life policy’ is a discretionary trust
The trustees have powers to appoint the trust fund to anyone within the class of discretionary beneficiaries, which also includes the employee
The employee is included as a beneficiary, so that the policy can be assigned to them in the event that they leave the employment of the employer
Our trust is flexible – the employer can choose not to be trustee
Leaving employment
There are three options
1. The employee could choose to let the policy lapse
2. The life policy could be maintained by the employee personally. However, under the terms of the policy, the terminal illness cover will terminate.
3. The employee’s new employer could pay the premiums
The process
Business protection quote on portals or direct to us
Quote for level, increasing or decreasing life protection
Business protection menu application form
Separate plan/application for each life
Underwriting
Relevant life policy discretionary trust
Why Aegon?
Protection specialists
Multiples of cover
Financial underwriting limits
Redesigned trust form – shorter/easier to complete
Terminal illness
Portability
Large sum assured (LSA) experience
Immediate cover facility (ICF)
Counsel Opinion
Support from us
Supporting information and documentation on our website
Business protection toolkit/online- www.businessprotection.aegonse.co.uk/
Business protection underwriting helpline
- Ask to speak to a large sum assured underwriter
- 08457 83 54 73
Important information
This communication is for financial advisers only. It mustn’t be distributed to, or relied on by, customers.
This information is based on our understanding of current legislation, taxation law and HM Revenue & Customs practice, which may change. The value of any tax relief depends on the individual circumstances of the investor.
Scottish Equitable plc provides pure protection. Benefits are only payable in the event of a valid claim during the chosen term. In the absence of a claim there’s no cash value. Full details are contained in the policy conditions – please ask if you’d like a copy.
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Thank you
Contact nameContact details
Aegon is a brand name of Scottish Equitable plc. Scottish Equitable plc, registered office: Edinburgh Park, Edinburgh EH12 9SE. Registered in Scotland (No. 144517). Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Financial Services Register number 165548. An Aegon company. www.aegon.co.uk © 2013 Aegon UK plc
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