Is relevant life insurance a business expense?
Yes — in most cases, relevant life insurance premiums can be treated as a legitimate business expense. When the policy is set up correctly and meets HMRC’s conditions, the company can usually claim full corporation tax relief on the premiums. The cost is borne by the business, not the individual, and the cover provides personal protection for the insured director or employee. For an overview of how these policies work, see what is relevant life insurance?
Relevant life insurance is designed to provide life cover through a limited company in a tax-efficient way. If the insured person dies during the term, the insurer pays a lump sum to the trustees of a discretionary trust, who then pass it on to the beneficiaries. The structure is recognised by HMRC and used widely by owner-managed businesses and limited company directors. Learn more about trusts and relevant life policies.
Claiming as a company expense
Premiums are normally paid directly from the company bank account. If the policy is provided wholly and exclusively for the purposes of the trade, the cost may qualify as a deductible expense against corporation tax under section 54 of the Corporation Tax Act 2009. See the broader tax benefits of relevant life for how this interacts with other reliefs.
To qualify, the policy must be:
- for the benefit of an employee or director (not a shareholder reward scheme);
- used solely to provide death-in-service-type protection; and
- consistent with HMRC’s guidance on relevant life policies.
HMRC’s Business Income Manual (BIM45525) explains that life assurance premiums can be deductible if they are incurred for business reasons rather than private benefit. Your accountant or financial adviser should confirm that your policy meets the “wholly and exclusively” test. You can also read our 12 key facts guide for more technical details.
Benefit-in-kind treatment
One of the major advantages of relevant life insurance is that it is not usually classed as a benefit-in-kind. The company pays the premium, but the director or employee is not personally taxed on it. This makes relevant life cover far more tax-efficient than paying for a personal life policy out of post-tax income. See relevant life vs personal life insurance for a full comparison.
As long as the policy qualifies under HMRC’s relevant life rules and is written under a discretionary trust, the premiums will not appear on a P11D form or attract National Insurance contributions. For further clarification, see the FAQs.
When relief may be denied
Tax relief can be refused if the policy is seen as primarily benefiting the business owner in a personal capacity rather than serving a genuine business purpose. For example, HMRC could challenge a policy taken out mainly to extract profits tax-free or to benefit a non-working shareholder. Using a reputable adviser or broker ensures the policy is structured correctly from the outset. You can find guidance on policy setup in how to set up relevant life insurance.
Inheritance tax and trust benefits
Because the policy is written into a discretionary trust, the payout normally falls outside the deceased’s estate for inheritance tax purposes. This allows the benefit to reach dependants quickly and tax-free. The trust also provides flexibility if family circumstances change during the policy term. See trusts and relevant life policies for how this is structured.
Professional advice
Tax treatment depends on your company’s circumstances and HMRC’s current rules. Before claiming relief, confirm the position with your accountant or adviser. Our partner, Broadbench, specialises in setting up compliant relevant life policies for limited company directors and can ensure the trust and documentation meet HMRC standards.
Read more about the tax benefits of relevant life insurance, trust setup, or explore the FAQs and quote form for next steps.