Relevant Life Cover: Can My Limited Company Pay for My Life Insurance?

It is a death-in-service policy that the company takes out for one employee or director. It pays a tax-free lump sum to that person's family or chosen beneficiaries, or to a charity, if they die during the policy term. It is normally written into a trust from the start, so the payout does not belong to the company.

To count as a relevant life policy (an "excluded benefit" under ITEPA 2003 and HMRC manual EIM15045), the policy must:

• cover only one life
• pay out only on death before age 75
• pay benefits only to individuals or a registered charity, not the company
• have no surrender value or investment element
• not be designed mainly to avoid tax

Sole traders and equity partners cannot use it for themselves, because they are not employees.

Company-paid premiums can cost less than paying from salary or dividends. Savings depend on your tax band and the company's Corporation Tax rate.

There is no special relief, so the general rules in section 54 CTA 2009 apply. HMRC looks at whether your total pay package (salary, pension and benefits) is reasonable for the work you do (BIM46035). It also flags cover that only shareholding directors get and other staff don't, because protecting the value of your shares or estate is a non-trade purpose (BIM45530). Cover that fits sensibly within your pay is easier to defend.

• Relevant life: protects your family. The payout goes to beneficiaries through a trust.
• Key person insurance: protects the company against lost profits if a key person dies. The company is the beneficiary. BIM45525 expects term cover for lost trading income to end when the person stops being useful to the company; a deductible-policy payout is taxable. HMRC can question cover on a shareholding director (BIM45530), so premiums are not automatically deductible for an owner-managed company.

Many owner-managed companies have both.

• Get the policy arranged by a regulated adviser and set up under a suitable trust. Inheritance tax depends on the trust.
• The company should own the policy and pay the premiums to the insurer. If you pay the premiums yourself, it isn't a company-funded relevant life policy.
• Record the premium as a staff cost in your bookkeeping and keep the policy and trust documents.

We'll check your relevant life premiums sit sensibly within your salary, dividends and pension, and that they're booked correctly for Corporation Tax. Get a quote or book a call. For the policy itself, speak to an FCA-regulated protection adviser.