Relevant life insurance (RLI) is a popular employee benefit which is tax-efficient for both employers and employees. As an employer, it allows you to provide death in service benefits for your employees without having to set up a trust or contribute to a group scheme. It is also exempt from inheritance tax and corporation tax, meaning that the cost of providing life insurance is reduced significantly. This article will address the taxation of RLI in relation to HMRC.
Relevant life insurance is often used as an alternative to traditional group schemes, especially where there are only a few people employed by the company. The main advantage of RLI is its relative simplicity and low cost compared with other types of life insurance. Additionally, any claim made by an employee’s beneficiary will be exempt from income tax. However, there are certain taxation rules which must be adhered to when setting up RLI in order to comply with HMRC regulations.
This article will explore the relevant taxation rules associated with RLI in relation to HMRC regulations. It will also provide an overview of how employers can make sure they remain compliant with these regulations when setting up their own RLI policies.
The tax treatment of relevant life insurance policies depends on who pays the premiums and how the proceeds are used.
In general, if the employer pays the premium and any proceeds are received by them, then no tax will be payable at all. However, if the employee pays some or all of the premiums then they may be liable to pay income tax or National Insurance Contributions (NICs) depending on their employment status. The receipt of any death benefit by an employee is also subject to income tax and NICs.
It should be noted that HM Revenue & Customs (HMRC) do not recognise relevant life insurance as a pension scheme, so there may be additional restrictions regarding how funds can be used from a personal perspective. Professional advice should always be sought to ensure compliance with HMRC regulations in respect of relevant life insurance policies.
For Premiums to be eligible for tax relief, the premium must relate to an individual policy and the person providing the cover must have an insurable interest in the insured person’s life. The insurable interest must also be established before the policy is taken out. Furthermore, the policy must not be used to provide any benefit that is not related to death or serious illness. Additionally, there are certain limits on how much can be claimed in terms of tax relief on premiums paid.
Tax relief on relevant life insurance premiums may provide significant savings, enabling individuals and employers to secure greater levels of financial protection at a lower cost than other forms of life insurance. It is important to understand all rules and regulations surrounding such tax relief in order to ensure that all claims are valid and comply with HMRC requirements.