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Considered Business & Shareholder Protection?

Our advisers recommend your company organises business protection cover

Thursday 27 February, 2020

Half of small and medium businesses have no succession planning in place so call us on 01707 872000 for personalised business protection advice.

There are 5.8 million small to medium sized enterprises in the UK each with their own specific financial needs. 

Within these businesses 50% have no plan of the disposal of shares on the death of a shareholder and 50% believe they would cease trading within a year if the death of a key employee occurred. 

Business owners should review their business protection cover 

Remember 60% of the UK population is employed in the private sector so if these businesses were to cease trading it not only impacts the business and directors but also their employees, suppliers and customers.   

How to protect your business?

The good news is that you can protect your business through:

  • Business Protection
  • Shareholder Protection
  • Key Person Insurance
  • Relevant Life
  • Business Loan Protection

Below I will review the key points for a relevant life plan. Later this year I will write other business protection articles focusing on the self-employed work force.

What is a relevant life plan and why should business owners set one up?

A relevant life plan in simple terminology is a life cover plan for the benefit of an employee that is tax relievable. The employer or the business owner takes out a policy on the life of the employee which could be himself, as most business owners are also employed directors. The plan must be set up under a relevant life trust. Now the benefit is paid to the trust and trustees on the employee’s death with the proceeds going to the employee’s dependents and beneficiaries. 

Why higher rate taxpayers could benefit by taking out a life plan

One of the main attractions of the life plan is the tax efficiency and the tax relief that is attributable to it. The tax savings include savings on income tax, corporation tax and national insurance for both employee and employer.  According to information from Aviva in relation to higher rate tax-payers a £100 per month life policy can cost as little as £80 per month net when set up as a relevant life policy compared to the £160 per month net it could cost when set up as a personal policy. Even company directors that are not higher rate taxpayers and withdraw income mainly as dividends rather than salary for tax efficiency purposes will still save on corporation tax. 

What are the employee benefits of a life plan?

An employee would not be taxed on the policy as a benefit in kind, there is no capital gains tax, no national insurance, the benefits are paid outside their estate, so it doesn’t incur Inheritance tax or count towards their annual or lifetime pension allowance. Now given the benefits this may sound too good to be true but there is no catch so I can’t understand why so many companies fail to set up relevant life plans. 

A life plan for employees can also cover significant illness

Another great introduction is that we also have a relevant life plan with employee significant illness. This allows us to offer life cover and also offer a form of illness cover to help protect individuals from some of the most severe illnesses in a tax efficient way. This means if an individual had this plan and was to have a critical illness that produced a pay-out they wouldn’t have to draw down and deplete their pension fund.

Why a group death in service benefit might not be as suitable for your employees

Many employers set up group death in service benefit for their employees but one of the main problems with this type of policy is that the proceeds act as a pension benefit and count towards the individual’s lifetime allowance which could cause severe tax consequences. In reality employers should set up individual relevant life plans which work out more tax efficient and benefits all parties, but the problem is not enough employers are aware of relevant life plans and the consequences of group death in service benefits. 

Vishal Gulrajani, Financial Adviser in Goff’s Oak & Cheshunt, Hertfordshire said:

‘Overall relevant life policies are a tax efficient way for business owners to set up life policies to help protect their business and their employees. The introduction of relevant life plans with significant illness cover only bolsters the options for a business owner but it shouldn’t be confused with a personal critical illness plan as this is usually more comprehensive. If you want to protect your business and do this in the most tax efficient way, please get in touch with one of our business protection experts on 01707 872000. At Thomas Oliver we make sure we obtain regular updates and have constant training on business protection cover as more business owners are wanting protection advice. We are also seeing more individuals go self-employed and they also require business protection cover.’

In Summary…

If you want business protection cover for yourself or your employees, please call one of our mortgage and protection advisers on 01707 872000 for personalised business protection advice.

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