By David Porter, Financial Planning Consultant, Armstrong Watson

IT is common for employers to provide life cover for employees using Death in Service (DIS) schemes. These are structured under pension rules and therefore receive tax relief, but they are generally most attractive to larger companies.

For smaller limited companies, Relevant Life Plans (RLP) could be a cost effective way of providing life cover for directors and employees and as the premiums may be classed as a business expense, there are tax advantages.

RLPs are individual policies providing life cover to employees of limited companies, but not partners/members of Limited Liability Partnerships (LLPs), partnerships or sole traders.

With an RLP, the company arranges the plan to provide life cover for the employee up to a maximum age of 75. The plan must be written under a specific trust arrangement, where the beneficiaries of the trust are the family of the person being covered. Upon death within the term, the sum assured is usually paid free of all forms of taxation.

The following example illustrates how the cost saving could apply where an RLP is compared to a conventional life policy.

Based on a monthly premium of £200 for a higher rate tax paying director funding the premiums from his/her net pay (once National Insurance at 2% and income tax at 40% are deducted) this equates to a total gross monthly outlay of £317.86. The same plan funded by the employer via an RLP (after Corporation Tax relief) would cost £162 per month, thus saving £155.86 or 49%.

Unlike conventional DIS arrangements, RLP premiums and sums assured do not count towards Annual or Lifetime pension allowances (employees with large pension funds could unwittingly exceed the Lifetime Allowance when DIS is taken into account) and if the employee decides to move on, the policy is portable and they can continue it.

Companies with senior employees or directors where either the individual or the company are paying premiums for life cover, should review their arrangements as a Relevant Life Plan could therefore make significant cost savings.

For further information or advice call David Porter on 01756 620000 or email