Insurance Curator LONDON – Small and medium-sized enterprise (SME) owners across the United Kingdom are increasingly adopting "Relevant Life" plans to secure life insurance coverage while offsetting rising operational costs through tax-deductible business expenses, according to recent financial industry reports.
The shift comes as UK businesses face a tightening fiscal environment, characterized by the 2023 increase in Corporation Tax and rising National Insurance contributions. By reclassifying life insurance from a personal expense to a corporate one, company directors are reporting significant reductions in their overall tax liability.
A Relevant Life Plan is a type of term life insurance policy that a business takes out for an individual employee, including director-shareholders. Unlike traditional group life schemes, which typically require a minimum of five to 10 participants, these plans are designed specifically for small businesses with few employees.
"We are seeing a marked increase in inquiries as directors realize they can save nearly 50 percent on premiums by switching from personal policies to corporate-sponsored Relevant Life plans," said Marcus Wright, a senior consultant at several independent financial advisory firms. "In an era of high inflation and increased corporate overhead, the ability to fund a personal benefit through pre-tax company income is becoming a primary financial strategy for SMEs."
The financial advantages of the scheme are rooted in its classification by HM Revenue & Customs (HMRC). Because the premiums are usually viewed as a localized business expense, they are typically eligible for Corporation Tax relief. Furthermore, unlike most employer-provided benefits, Relevant Life plans are not treated as a "Benefit in Kind." This means employees do not pay specialized income tax on the premiums, and neither the employer nor the employee is liable for National Insurance contributions on the cost of the policy.
For a high-rate taxpayer, the savings can be substantial. According to data from financial analysts, a director paying for a personal life insurance policy out of post-tax dividend income may effectively pay double the cost of a Relevant Life premium when accounting for the taxes required to earn that income.
"For a director in the 45 percent tax bracket, paying for life insurance personally is remarkably inefficient," said Sarah Jennings, a tax specialist at a leading London-based accounting firm. "By moving the policy into a Relevant Life structure, the company pays the premium directly, the taxman takes nothing from that payment, and the business reduces its taxable profit. It is one of the few remaining 'win-win' scenarios in the UK tax code."
The surge in adoption also follows the recent abolition of the Lifetime Allowance (LTA), which previously capped the total value of pension benefits an individual could accrue without tax penalties. While Relevant Life plans do not count toward pension allowances, they offer a separate "Lump Sum and Death Benefit Allowance" (LSDBA) of £1,073,100, providing a significant safety net for high-earning directors without infringing on their pension planning.
However, industry experts caution that strict compliance is necessary to maintain the tax-advantaged status. To qualify, the policy must be written into a trust from the outset, and the benefits must be payable only to the employee’s family or their estate. The plan cannot have a "surrender value," meaning it acts strictly as insurance rather than an investment vehicle.
As of early 2024, insurance providers have reported a double-digit percentage increase in the issuance of these policies compared to the previous fiscal year. Analysts expect this trend to continue as SMEs seek more aggressive ways to manage cash flow while maintaining competitive benefits for key personnel.