Is Employee Life Insurance Tax Deductible?

Is Employee Life Insurance Tax Deductible?

There are policies which are an allowable business expense, these are called Relevant Life Policies. They are similar to life insurance, as they are an insurance policy on the life of a person, but work differently because they are only on the life of a company employee and the company pay the monthly or annual cost of the policy. The death in service plans are an employee benefit for working for the company. Should the employee die, the Relevant Life Policy will pay a lump sum to the insured employees family, ensuring that they are provided with financial help when they most need it.

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For example, if John Smith worked for Business Protection Expert and we took out a relevant life policy on John, should he become terminally ill or die the policy would pay out a lump sum to his designated loved one, Mrs Smith. Even though Business Protection Expert are paying the policy premium the payment goes to the employees chosen loved one. This is because the policy premium is written into a trust stipulating who should receive the money.

Relevant Life Policies Tax Treatment

These policies are tax efficient because they are insuring the life of an employee to provide a compensation to the insured employees family, not to the business. HMRC state that the insurance is a deductible business expense if it is to, ‘an obligation to pay compensation on the death ext, of employees’. The premiums are therefore, ‘allowable as a deduction because they are not capital expenditure. They’re incurred wholly and exclusively for the purpose of the business.’

As the business does not receive the policy premium there are also no tax implications on the pay out. These plans are a great way for the company to save money on tax, whilst providing their employees / directors or partners with a benefit to working for the company.

Staff perks have been found to help staff feel more valued at their company and to help increase the loyalty they feel towards the company by 35%.

If you are interested in putting one of these policies into place fill in our online form below, and we will be happy to provide you with some quotes.